In the matter of Lorie Najjar & Sons Pty Limited (in liquidation) (No 2) [2013] NSWSC 1059

Judgment 1By Interlocutory Process filed in February 2012, the Defendant in these proceedings, Mrs Najwa Najjar (to whom I will refer, without disrespect, as "NN") initially sought an order under s 482 of the Corporations Act 2001 (Cth) that the winding up of the First Plaintiff, Lorie Najjar & Sons Pty Limited (in liq) ("Company") be terminated. Alternatively, NN sought, and ultimately pressed, an order under s 482 of the Corporations Act that the winding up of the Company be stayed, pending determination of the costs properly payable to the Second Plaintiff, Mr Peter Paul Krejci, as liquidator of the Company ("Liquidator") on termination of the winding up. 2In my Judgment delivered on 18 June 2013 ([2013] NSWSC 798) ("Judgment"), I held that the winding up should be stayed under ss 482 and 511(1)(b) of the Corporations Act in somewhat exceptional circumstances. I observed that I reached that result because the claims against the Company on which the Liquidator relied did not, in my view, support a finding that the Company was presently insolvent, and it did not seem to me appropriate that a liquidator should be permitted to bring or continue proceedings under Part 5.7B of the Corporations Act, which were made available for the benefit of creditors of insolvent companies, where a company was not presently insolvent. 3I directed the parties to bring in agreed short minutes as to the orders that should be made to give effect to the judgment within 28 days or, if there was no agreement between them, the orders for which they respectively contended and submissions as to the differences between them, which should indicate whether an oral hearing was required. That time was subsequently extended at the request of the parties. The parties then lodged proposed Short Minutes in different terms and lodged submissions as to the respective positions. Stay of the liquidation 4It was common ground between the parties that the effect of my Judgment should be implemented by an order that the liquidation of the Company be stayed. I had raised, in my Judgment, the possibility that a stay could be ordered for a fixed period, to avoid the risk that it would continue for too long without a determination whether the winding up should be terminated. Neither party has sought an order in that form and I therefore will not make it. Stay of the Originating Process and NN's claim for dismissal of the Originating Process 5NN seeks orders that the Plaintiffs' Originating Process filed 24 June 2010 be dismissed and that the Liquidator pay her costs of that Originating Process as agreed or assessed. NN contends that the proceedings should be dismissed because the Company is not presently insolvent and the claims relied on by the Liquidator were not properly debts of the Company and that the proceedings cannot be maintained without the essential foundation of insolvency. The Liquidator points out that NN did not seek an order that the proceedings be dismissed in her Interlocutory Process and that other matters might have arisen had she done so. I accept the Liquidator's submission that no such order should be made where the Liquidator has not had an opportunity to lead evidence as to that issue or to have a substantive hearing as to that issue. 6I also do not consider that a basis to make such an order dismissing the proceedings has been established. NN's submissions do not have sufficient regard to the fact that the Liquidator was validly appointed as voluntary liquidator of the Company and the Liquidator presently remains in office since the winding up has been stayed and not terminated. As the Liquidator points out, if creditors can establish a proper basis for the debts claimed against the companies so that it is in fact shown to be insolvent prior to any orders being made for termination of the winding up, then the stay of the winding up and the stay of the proceedings are likely to be terminated. 7The Liquidator also submits, and I accept, that where the proceedings are stayed and not dismissed, no orders should be made for the costs of the proceedings generally, which should be reserved. 8NN also seeks an order that she be released from the undertakings given to the Court on 21 February 2013 which require her to give notice of dealings with funds held by certain trusts and the estate of her late husband. NN contends that the finding that the Company is not presently insolvent should mean that she is entitled to be released from undertakings previously given to the Court. The Liquidator submits, and I also accept, that there is no basis for releasing NN from her undertakings given in the proceedings, where they are presently stayed rather than dismissed. Costs of the Interlocutory Process 9NN seeks an order that the Liquidator pay her costs of her Interlocutory Process filed 20 February 2012, as agreed or as assessed. The Liquidator concedes that an order should be made for payment of NN's costs of the proceedings, but contends that order should be made against the Company and the Liquidator jointly and that the costs of evidence given by Mr Johnson, which I noted in my Judgment was of "limited assistance", should be excluded from that order. 10I consider that the proper order for costs is one against the Liquidator rather than against the Liquidator and the Company personally, because the Liquidator rather than the Company was the true opponent of the application for the stay of the winding up and, as I will note below, funded and conducted the application before me on that basis. Although I continue to take the view that Mr Johnson's evidence was of limited assistance, the Court will not generally deprive a successful party of an order for costs in its favour based on assessments of whether particular evidence was of particular significance in the proceedings, and I do not propose to do so in this case. The Liquidator originally proposed but does not now press a limitation of the order for costs to the assets of the Company available to satisfy that liability, after meeting expenses in priority to or pari passu with the Liquidator's liability under the Order. 11NN also seeks an order that the Liquidator pay the costs of the Interlocutory Process and the costs of the Originating Process personally and without any right of indemnification from the assets of the Company or any of the monies paid into Court in these proceedings by NN. The question as to the costs of the Originating Process does not arise, because I have not ordered that the Originating Process be dismissed or the Liquidator pay NN's costs of it. It is necessary to determine this question so far as the costs of the Interlocutory Process is concerned. 12NN supports the qualification that the Liquidator should pay these costs without any right of indemnification from the Company's assets or any of the monies paid into Court in these proceedings by NN on the basis that, she contends, the Liquidator did not act prudently and reasonably in commencing and prosecuting the proceedings and therefore should pay her costs of the proceedings without a right of indemnification out of the Company's assets. She submits that the Court may determine that matter at the conclusion of the litigation, provided the Liquidator has been given appropriate notice of the application which will be made and is afforded procedural fairness. 13The Liquidator submits that there is no basis for such an order, because there was no impropriety in his commencing the proceedings; the evidence on which he relied was, he contends, not so weak that it indicated that he could not have acted prudently and reasonably or honestly, in commencing the proceedings; and, as I recorded in my Judgment, NN had expressly disavowed any contention that the Liquidator had acted improperly in the proceedings. The fact that such a contention was not advanced by NN in the proceedings, and the Liquidator had no need to lead evidence in response to it, seems to me to be sufficient reason that an order depriving the Liquidator of a right of indemnity should not be made at this point. I express no view as to the underlying factual question of the prudence or otherwise of the Liquidator's conduct, which is a matter that may arise in determining the remuneration, costs and expenses that are properly recoverable by the Liquidator prior to a termination of the winding up. 14I also do not consider that the order sought by NN is necessary, in practical terms. This question arises in the context that the Liquidator is indemnified against the costs that he will be ordered to pay under a Funding Agreement with several persons who claim to be creditors of the Company ("Funding Parties"). By a Funding and Indemnity Agreement dated 13 February 2013 between the Liquidator and the Funding Parties, which was the successor to an earlier funding agreement, the Funding Parties agreed to indemnify and hold harmless the Liquidator in respect of the "Expenses", as defined, that indemnity to endure and continue to apply notwithstanding any termination of the Funding Agreement (clause 5). The term "Expenses" was defined to include any monies payable to NN or any other party as a result of any costs orders against the Liquidator in respect of the Proceedings, as defined. The term "Proceedings" was in turn defined to include the relevant proceedings and any interlocutory applications and any other action necessary to continue to prosecute or defend any interlocutory application. The application brought by NN was plainly an interlocutory application within the definition of "Supreme Court Proceedings" in the Funding Agreement; the Liquidator's defence of it was a step taken in defending such an application and was therefore within the definition of "Proceedings" in the Funding Agreement; the monies payable to NN as a result of the costs orders are in respect of the Proceedings and therefore within the definition of "Expenses" in the Funding Agreement; and the Liquidator is therefore indemnified in respect of those monies under clause 5 of the Funding Agreement. 15First, it seems to me that the order sought by NN is not necessary because there is no reason to think that the Liquidator would take the surprising course of not exercising his rights under the Funding Agreement, to which I have referred above, and instead seeking to pay the costs out of the assets of the Company or any of the monies paid into Court in these proceedings by NN. The Liquidator made clear in the course of the hearing that he had rights to indemnity under the Funding Agreement; thus Mr Miller, who appeared with Mr To for the Liquidator, submitted on the Liquidator's behalf (at T194) that: "It's not in dispute that the liquidator had the benefit of a funding and indemnity agreement and continues to have the benefit of it. It is the liquidator's position and expectation that fees and expenses will continued [sic] to be paid under the funding and indemnity agreement." The Liquidator has not suggested that he intends not to exercise his rights under the Funding Agreement in submissions in this application and I should proceed on the basis that he would have disclosed that intention if he held it. 16Second, such an order is not necessary because it is practically unlikely that the Liquidator would not exercise his rights under the Funding Agreement where the assets of the Company that are presently in his possession are limited and would not be sufficient to discharge the costs order and he could have no reason to think that the Court would release the monies paid by NN into Court for the purpose of meeting liabilities for which the Liquidator is indemnified under the Funding Agreement. Third, such an order is unnecessary because the Court would have ample powers in its inherent jurisdiction over liquidators and under s 536 of the Corporations Act to intervene if the Liquidator were disposed to take the course which NN fears. However, I will, for more abundant caution, order that the Liquidator not have recourse to the assets of the Company or any of the monies paid into Court in these proceedings by NN in order to discharge the costs he has been order to pay in respect of the interlocutory application without giving 14 days notice to NN of his intention to do so. That will allow NN ample opportunity to bring the matter back before the Court and seek such relief as she may be advised. Liquidator's remuneration 17The Liquidator seeks an order that NN pay his remuneration, costs and expenses of the winding up of the Company to the date on which the liquidation is stayed, except for remuneration, costs and expenses incurred in or relating to the proceedings including the interlocutory application. NN submits that such an order is premature given the hearing of the termination of the winding up is yet to proceed. The Liquidator contends that, in normal circumstances, a party who seeks the stay of a liquidation is obliged to meet the fees and expenses that the Liquidator has incurred in the liquidation. That proposition should be qualified by the requirement that the fees and expenses incurred must be proper and reasonable. Whether the fees and expenses incurred by the Liquidator were proper and reasonable is a matter that remains to be determined in these proceedings, if agreement is not reached between the parties in respect of the extent of the Liquidator's costs and expenses that are payable prior to any termination of the winding up. 18I do not consider that it is necessary or appropriate to make the order sought by the Liquidator at this point. First, the question of the fees and expenses properly payable to the Liquidator is a matter that will need to be addressed prior to making any order to terminate the winding up. That may require further investigation of issues that I had identified in paragraph 136 of my Judgment but not considered it necessary or appropriate to determine. Second, and in any event, the Liquidator has not led evidence to identify the activities which he undertook other than in relation to the proceedings and the interlocutory application or the remuneration costs and expenses attributable to them so as to support such an order. Agreement as to costs of the liquidation 19NN and the Liquidator broadly agree that there should be a direction that the parties attempt to reach agreement as to the remuneration, costs and expenses of the winding up properly payable to the Liquidator. There is a difference in the parties' formulation of that order, because the Liquidator proposes that the order for payment of such remuneration, costs and expenses should be made at this stage and that order was, as I noted above, resisted by NN and I have not made it. I will make this order in substantially the form suggested by NN. Costs of compliance with statutory obligations 20The Liquidator seeks an order reserving liberty to him to seek orders that NN pay to the Company such costs and expenses as are incurred by him in complying with his statutory and/or regulatory obligations as Liquidator of the Company during the period of the stay, and reasonable remuneration for his services in doing so. There is force in the Liquidator's submission that it is appropriate that he should be indemnified at least for the costs and expenses incurred in complying with those obligations, where NN, as sole shareholder of the Company, resolved that it be placed in voluntary liquidation, and where she elected to pursue a stay, rather than a termination, of the winding up in the proceedings before me. However, I do not consider that it is necessary to make an order reserving such liberty since it is open to the Liquidator to file an Interlocutory Process seeking such orders if he wishes to do so. Debt owed to Baker & Company 21The Liquidator initially sought an order that NN pay a creditor of the Company, Baker & Company, the sum of $7,423.33. NN contends that the payment to Baker & Company is a matter to be taken into account on the termination of the winding up and not at this stage. The Liquidator now accepts that the position of Baker & Co can await the decision as to whether or not the liquidation will be terminated, and do not press for the order that he originally sought in this regard. Relisting of the matter 22It is common ground that the matters should be listed for mention on 4 October 2013, although the Liquidator proposed that that listing should be before the Registrar. I consider that, given the somewhat complicated history of the matter, it is likely to be preferable that it be listed before a Judge of the Court. I will list the matter for directions at 9.30am on the date proposed, although the parties should advise my Associate if they would prefer to have the matter listed in the Corporations List for directions in the ordinary course on an agreed date. Orders 23Accordingly, I make the following orders: