In the matter of EKMM Pty Ltd [2022] NSWSC 1367

Supreme Court of NSW|2022-10-10|Before: Peden J

EX TEMPORE Judgment

By originating process filed on 3 August 2022, the first plaintiff seeks the winding up of EKMM Pty Ltd (the Company) on the ground of insolvency following a members' voluntary liquidation pursuant to Corporations Act 2001 (Cth) s 459A (the Act). In addition, they also seek the following orders: … 2. An order that the liquidators be appointed as joint and several liquidators of the Company. 3. An order pursuant to section 513A of the Corporations Act 2001 (Cth) that the date of winding up of the Company be 28 February 2022, being the date on which the Company was placed in members' voluntary liquidation. 4. An order pursuant to section 477(2B) of the Corporations Act 2001 (Cth) that the entry by the Liquidators into the agreements described in the affidavit of Jonathon Keenan filed on 3 August 2022 as the Solicitors' Retainer and the Counsel's Retainer be approved nunc pro tunc. 5. An order that the Liquidators' costs (including reserved costs, if any) of this proceeding be paid out of the property of the Company in accordance with section 556(1)(b) of the Corporations Act 2001 (Cth). 6. Such further or other order as the Court deems fit.
The application is unopposed. There was no appearance for the second defendant. The first defendant was excused from appearing. Both defendants were served with the originating process through their solicitors.
All known and contingent creditors were informed of the application, and none sought to be heard. Neither of the defendants have claimed they are creditors, and, in any event, the evidence of the Liquidators suggests that both defendants are instead net debtors of the Company.
The issues have arisen because the Company was originally thought to be solvent at the time of the members' voluntary resolution. However, the Liquidators' views have changed because of the defendants' conduct in the intervening period.

Background

EKMM Pty Ltd was incorporated in June 2019 by Dr Alan Evans and Dr Mutti-Ur-Rehman Khan to deliver cosmetic surgery services in Southern Sydney under the trading name "Shire Cosmetic Medicine". They were at all relevant times the only shareholders and directors of the Company. The Company was operated through Dr Khan and Dr Evans' nominated entities. The Company operated out of premises as a lessee.
The Company's assets included plant and equipment at the premises and intellectual property for its business name.
Dr Evans and Dr Khan are in a dispute for reasons not relevant to these proceedings.
Together they passed a resolution on 28 February 2022 to appoint Messrs Jonathon Keenan and Peter Krejci (the Liquidators) jointly and severally as liquidators. In his affidavit sworn 3 August 2022, Mr Keenan says he has more than 15 years' experience as an accountant specialising in insolvency-related matters in Australia. Counsel submitted the Liquidators are "experienced".
Prior to passing the resolution, Dr Khan and Dr Evans provided the liquidators with a declaration of solvency and an indemnity for "their remuneration, costs, fees and expenses incurred in connection with the winding up of the Company, as estimated prior to the appointment".
On 11 March 2022, the Liquidators provided their first report to the creditors. At that time, the Liquidators reported that the Company was continuing to trade and was expected to meet all trading obligations, and that the Company "remains solvent subject to the realisation of these assets, including the sale/assignment of the lease and its obligations".
Subsequent events have changed the Liquidators' original position. They say that the intended process of liquidation has, since March 2022, been frustrated by Dr Khan and Dr Evans, including by: 1. Dr Evans abandoning negotiations for his purchase of the Company's assets and assignment of the lease of the premises. No sale agreement and license has been signed. 2. Dr Evans and Dr Khan refusing to pay outstanding contributions owed to the Company totalling $415,000 by Dr Evans and $425,000 by Dr Khan. Those contributions were required by an "Associate Agreement" which the defendants and their nominated entities entered on 28 February 2019. No contributions have been paid since November 2020. The respective solicitors for Dr Evans and Dr Khan confirmed that their clients are required to pay the unpaid contributions to the Company. Dr Khan has, in correspondence with the Liquidators, suggested the contributions payable to the Company have been varied by an agreement with Dr Evans, however no further details concerning the variation have been provided to the Liquidators. 3. Dr Evans refusing to pass any resolutions proposed by the Liquidators at a meeting of members on 8 June 2022, including a resolution for the Company to enter into a retainer with the solicitors. 4. Dr Evans and Dr Khan failing to pay fourteen weekly invoices issued by the Liquidators.
As a result, by June 2022, the Liquidators considered the Company was insolvent, the Company ceased trading, and the Liquidators evicted Dr Khan and Dr Evans from the premises and the Company's lease.
On 9 August 2022, a Form 519 Notification of Court Action Relating to Winding Up was prepared and lodged with ASIC. On 5 September 2022, a Form 8 Consent of Liquidator was filed and served. On 12 September 2022, a Notice of the Application to Wind Up the Company was published on the ASIC Insolvency Notices website pursuant to Corporations Regulations 2001 (Cth) r 5.4.01A.

Determination

The first issue that must be addressed is whether the Company can be wound up in insolvency under s 459P of the Act. The Court is empowered to order that an insolvent company be wound up in insolvency under s 495A of the Act.
The Liquidators submitted that the Company should be wound up because they have formed the opinion that the Company is no longer solvent unless the Liquidators can recover all or some of the outstanding contributions owed to the Company by Dr Evans and Dr Khan. Mr Keenan deposes in his affidavit dated 3 August 2022 that there will not be sufficient funds available within 12 months of the winding up commencing to discharge the costs and creditor claims in full.
I accept the evidence of the Liquidators and accept that the Company can be wound up in insolvency under s 495A of the Act. As a winding up is already in progress, the relevant winding up is taken to have begun or commenced when the last-mentioned winding up is taken, being 28 February 2022 pursuant to s 513A(a) of the Act.
An order under s 495A is predicated on compliance with several procedural steps. The issue here is that a Form 519 Notification of Court Action Relating to Winding Up was filed late on 9 August 2022. The deadline for lodgement of the notification was 4 August 2022 under s 470(1)(a).
The Liquidators have sought an order under s 467(3)(b) that the timing requirement in s 470(1)(a) is dispensed with. Section 467(3)(b) provides: (3) The Court may, on the application coming on for hearing or at any time at the request of the applicant, the company or any person who has given notice of intention to appear on the hearing of the application: […] (b) dispense with any notices being given or steps being taken that are required by this Act, or by the rules, or by any prior order of the Court; and
I am satisfied this is a case in which the timing requirement in s 470(1)(a) can be dispensed with.
Counsel did not take me to an authority where the timing requirement in s 470(1)(a) in particular had been dispensed with, however, the dispensation power has been readily applied in other circumstances, including in the context of advertisements after an application for winding up is made: s 465A; Re Alon Pty Ltd [2022] NSWSC 64. I do not consider it would apply any differently here. I also note Black J's statement in DJG Securities Pty Ltd [2013] NSWSC 588: Turning to the formal requirements for a winding application, a liquidator's consent has been filed, albeit there is a degree of informality in the process where the consent was originally given to appointment as a provisional liquidator and extended to an appointment as a liquidator by email. I will dispense with the strict application of Supreme Court (Corporations) Rules 1999 (NSW) r 5.5(3)(b) in that regard. The winding up application was not published as required by s 465A of the Corporations Act or in accordance with rule 5.6(2)(b) of the Corporations Rules. However, the Court may dispense with that requirement under s 467(3), and I note that White J did so in respect of an unopposed winding up application in Koslowski v JSVG Developments Pty Ltd [2010] NSWSC 1022. I am satisfied that I should also do so here where there is no suggestion that the failure to publish an advertisement would cause any substantial disadvantage to any other creditor, and no real likelihood that any other creditor would have sought to intervene or succeeded in persuading of the court, that these circumstances did not warrant a winding up order.
Unlike cases where the particular notice has not been filed at all, the relevant notice here was only filed late. The purpose of the notice (Form 519) is to inform ASIC that an application has been made to the Court to have a company wound up. It is not apparent that the late filing of the notice would have any effect on creditors, nor, in any event, rise to the level of a substantial disadvantage to creditors. To require compliance with the timing requirement now would only generate unnecessary costs.
The Liquidators also sought Court approval of their entry into retainers with their solicitors and counsel nunc pro tunc under s 477(2B) of the Act on the basis that the term of each retainer may end more than 3 months after each retainer was entered into by the Liquidators. Section 477(2B) provides: Powers of liquidator […] (2B) Except with the approval of the Court, of the committee of inspection or of a resolution of the creditors, a liquidator of a company must not enter into an agreement on the company's behalf (for example, but without limitation, a lease or an agreement under which a security interest arises or is created) if: (a) without limiting paragraph (b), the term of the agreement may end; or (b) obligations of a party to the agreement may, according to the terms of the agreement, be discharged by performance; more than 3 months after the agreement is entered into, even if the term may end, or the obligations may be discharged, within those 3 months.
The Liquidators retained the solicitors on 28 March 2022 (Solicitors' Retainer) and retained counsel on 27 July 2022 (Counsel's Retainer).
In his affidavit sworn 3 August 2022, Mr Keenan stated that, in his experience, the fees charged by counsel and the solicitors are competitive and reasonable. Further, he considered it in the best interests of the Company that the Company enter into both retainers because of the conduct of Dr Evans and Dr Khan and, in the case of counsel, once it became evident that an application to the Court was required. Counsel submitted that approval is also sought because the Liquidators "may require further advice and assistance from their solicitors and counsel in the future, including advising on and possibly commencing claims against the Company's former directors … for breach of directors' duties".
I will grant that approval.
Accordingly, the Court makes the following orders: 1. Order pursuant to s 467(3)(b) of the Corporations Act 2001 (Cth) that the time limit for the plaintiffs to serve the Form 519 Notification in respect of the company EKMM Pty Ltd (In Liquidation) (ACN 631 458 207) (Company) pursuant to s 470(1)(a) of the Act be dispensed with. 2. Order pursuant to s 459A of the Corporations Act that the Company be wound up in insolvency. 3. Order that the first plaintiffs, Jonathon Sherwood Keenan and Peter Paul Krejci, be appointed as joint and several liquidators of the Company. 4. Order pursuant to s 513A(a) of the Corporations Act that the date of winding up of the Company be 28 February 2022, being the date on which the Company was placed in members' voluntary liquidation. 5. Order pursuant to s 477(2B) of the Corporations Act that the first plaintiffs have the approval of the Court, nunc pro tunc, to enter into the agreements described as the "Solicitors' Retainer" and the "Counsel's Retainer", copies of which are contained in Exhibit 2, which was Confidential Exhibit JK-2. 6. Order that the plaintiffs' costs of this application be paid out of the property of the Company in accordance with s 556(1)(b) of the Corporations Act.

Amendments 17 October 2022 - Liquidator's surname amended to "Krejci" in order 3, Parties (Coversheet), [8] 17 October 2022 - Liquidator's surname amended to "Krejci" in order 3 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: 17 October 2022

Corporations Act 2001(Cth)ss 459A, 467, 477, 513A, 556, s 459A

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