In the matter of Milgerd Nominees Pty Ltd and others [2019] NSWSC 311

Supreme Court of NSW|2019-02-05|Before: Black J

Solicitors: Eakin McCaffery Cox (Plaintiffs) File Number(s): 2018/365045

Judgment - ex tempore (revised 8 february 2019)

By Originating Process filed on 27 November 2018, Mr John Sheahan and Mr Ian Lock, as liquidators of Milgerd Nominees Pty Ltd and several other companies ("Companies") seek a range of relief, which initially fell into four broad categories, but has now been restricted to three categories.

Affidavit evidence

The application is supported by affidavits of Mr Lock sworn 26 November 2018, 16 January, 29 January and 31 January 2019. In his affidavit dated 26 November 2018, Mr Lock refers to the circumstances in which he was appointed as voluntary liquidator in respect of several Companies and, in respect of at least one Company, B & I Finances Pty Ltd (in liq) became voluntary liquidator when that Company transitioned from a voluntary administration to voluntary liquidation. Mr Lock also refers to the circumstances of the particular Companies, and a series of transactions entered into by those Companies, and in particular to the sale of a property situated at Revesby in New South Wales. Mr Lock also refers to the receipt of proofs of debt in respect of several of the Companies, and to a claim brought against at least one of the Companies by a third party, asserting an entitlement to occupy a particular property, which will not be affected by the relief sought in this application.
Mr Lock there refers to one matter which is sought to be addressed by the application, that the sole director of five of the Companies was, at the time of his and Mr Sheahan's appointment as liquidators of four of the Companies, and as voluntary administrator of the fifth, not ordinarily resident in Australia. Mr Lock also refers to the likelihood that the liquidators will need to conduct further investigations in Israel, and seek the assistance of judicial authorities in Israel, which underlies an application made that the Companies be wound up and that Mr Sheahan and Mr Lock now be appointed as their court-appointed liquidators.
By his further affidavit dated 16 January 2019, Mr Lock refers to the circumstances of the sale of two properties and of a nursing home business and a third property. One of those properties, the Revesby property (as to which relief is sought), was sold by private treaty, following a marketing campaign, after Mr Sheahan's and Mr Lock's appointment as liquidator to several of the Companies, but on terms that had been the subject of negotiations prior to the Companies being placed in voluntary liquidation. In those circumstances, the liquidators were faced with a decision whether to go forward with the transaction on the terms that had previously been negotiated, particularly as to price and as to the six month period proposed for settlement, from the contract date of 21 December 2018. Mr Lock's evidence is that the liquidators formed the view that the commercial terms of the transaction were such that they should proceed to its completion, including as to the six month completion period that had already been negotiated prior to their appointment.
By his third affidavit dated 29 January 2019, Mr Lock refers to notification of this application to creditors and to the Australian Securities and Investments Commission ("ASIC"). No creditors notified an intention that they sought to be heard, or appeared today, and ASIC did not indicate that it sought to take any role in respect of the application. A fourth affidavit of Mr Lock dated 31 January 2019 provides further information as to the sale of the Revesby property, and explains the circumstances in which approval was not sought from creditors, including because two of the vendors of that property did not have arm's length creditors, as their only creditors were other associated entities.

Application for orders that the Companies be wound up in insolvency

Turning now to the specific relief that is sought, the liquidators first seek orders that each of the Companies be wound up in insolvency, in place of the existing voluntary liquidations, and that the liquidators be appointed as joint and several liquidators to each of those Companies, in effect becoming court-appointed liquidators in place of their existing appointment as voluntary liquidators.
Mr Lock's evidence, and the helpful submissions of Ms Zheng who appeared for the liquidators in the application, draw attention to the basis on which that application is sought. First, there is evidence, in Mr Lock's affidavit and its exhibits, of the insolvency of each of the Companies. As I noted above, the liquidators also point to the likelihood that they will need to undertake further investigations in Israel and potentially seek judicial assistance on those investigations, in respect of dealings between the Companies and several financial institutions located in Israel. They also refer to the possibility that they will need to exercise examination powers or seek other relief which would not be available to liquidators in a voluntary liquidation.
The liquidators draw attention to the relevant case law, including the decision of the Full Court of the Federal Court in CBA Corporate Services (NSW) Pty Ltd v Walker and Moloney; Re ZYX Learning Centres Ltd (recs and mgrs apptd) (in liq) (2013) 212 FCR 444 and the decision of Brereton J in Re Evcorp Grains Pty Ltd (No 2) [2014] NSWSC 155 at [15]-[19], which were in turn considered by the Federal Court in an application concerning a related company in Re BCI Finances Pty Ltd (in liq) [2015] FCA 1487. The Full Court observed in CBA Corporate Services above that whether the discretion to appoint a court-appointed liquidator under s 459A of the Corporations Act 2001 (Cth) should be exercised, where a company is already in voluntary winding up, depends on an assessment of the relevant circumstances, and should not be confined by introducing a further requirement that such an appointment should only be made "for good reason" as though it were part of that section. Their Honours also observed, however, that the phrase, "for good reason", to which reference had been made in earlier case law, likely reflected no more than a requirement that the power be exercised only in an appropriate case.
In Re Evcorp Grains Pty Ltd (No 2) above, Brereton J in turn summarised relevant factors, including that the justification for the appointment of a court-appointed liquidator, where a company is already in voluntary liquidation, would ordinarily be found in the interests of the administration and the general body of the creditors, and also observed that the views of the general body of creditors are a relevant consideration. In Re BCI Finances Pty Ltd (in liq) above, Foster J referred to those decisions and, in respect of a related company, appointed a court-appointed liquidator in order to facilitate further investigations in Israel, on a similar basis to the order sought in this application.
It seems to me that, for similar reasons as those identified by Foster J in Re BCI Finances Pty Ltd (in liq) above, the interests of creditors and the interests of the administration are likely to be promoted by appointing the liquidators as court-appointed liquidators, where the Companies are insolvent; that will facilitate their undertaking investigations in Israel, by conferring upon them a status that will be well understood in a foreign jurisdiction; and will also allow access to powers, including compulsory examination powers, which may be appropriately exercised in the relevant circumstances. This is not merely a case where the liquidators have a preference for one form of insolvency administration over another, but instead a case where there are advantages in a court-appointed liquidation, which would not be available in a voluntary liquidation. For that reason, I will make the orders sought in that respect.
The liquidators also seek an order dispensing, under s 467 of the Corporations Act, with notice provisions under r 5.6 of the Supreme Court (Corporations) Rules 1999 (NSW) in this regard. I am satisfied that such an order can properly be made where, first, the Companies have already been in voluntary liquidation and their transition to a court-appointed liquidation will likely have no impact upon third party creditors, other than expanding the powers which are available to the liquidators in the manner noted above. Second, as the liquidators point out, they have given notice to creditors and ASIC of this application.

Directions as to dealing with specified assets

A second category of orders originally sought in the Originating Process, that directions be given to the liquidators that they be empowered to deal with, dispose of and realise certain assets held on trust was, appropriately in my view, not pressed. The evidence led establishes that the liquidators have been appointed to companies which are corporate trustees of several trusts, and the trust deeds did not provide for the removal of the trustees on liquidation. In those circumstances, the liquidators have already proceeded on the basis that they have power to deal with the relevant assets, as an aspect of the affairs of the Companies in liquidation, by analogy with the position considered by Brereton J in Re Stansfield DIY Wealth Pty Ltd (in liq) [2014] NSWSC 1484, and by contrast with the more complex position if the trust deed provided for removal of the trustee on insolvency, which was considered by the Full Court of the Federal Court in Jones (Liquidator) v Matrix Partners Pty Ltd, in the matter of Killarnee Civil & Concrete Contractors Pty Ltd (in liq) [2018] FCAFC 40. The direction that was originally sought would have addressed matters as to which the liquidators have, or can, properly take legal advice. In these circumstances, it seems to me that that direction was properly not pressed.

Relief under s 1322 of the Corporations Act

Third, relief is sought under s 1322 of the Corporations Act in respect of a possible procedural irregularity in the liquidator's appointment as voluntary liquidators of four of the Companies, and their appointment as voluntary administrator of a fifth Company, B & I Finances Pty Ltd (in liq). As I noted above, Mr Lock identifies that potential irregularity in his affidavit evidence as arising from the fact that the sole director of the Companies was not ordinarily resident in Australia at the time the appointment was made. Mr Lock rightly recognises that that raises a potential contravention of s 201A of the Corporations Act, which provides that a proprietary company must have at least one director who must ordinarily reside in Australia.
There is a real question as to whether a contravention of that provision would in fact invalidate the relevant appointment, and the better view may well be that it would not. Nonetheless, consistent with the views taken in the case law, it seems to me that the orders sought by the liquidators are justified, and can properly be made where that would avoid any uncertainty in respect of that matter. In Re Creative Memories Australia Pty Ltd (admins apptd) [2013] NSWSC 652, Hammerschlag J noted that he was far from convinced that a resolution to appoint a voluntary administrator was invalid by reason of any contravention of that section, but nonetheless made an order under s 447A of the Act validating that appointment. In Re DH International Pty Ltd (admins apptd) [2013] NSWSC 1120; (2013) 95 ACSR 578, Brereton J noted that a person did not cease to be a director of a company where he or she ceased to reside in Australia, even if that gave rise to a contravention of the section; noted that the consequences of a contravention of the section were unclear; and in any event validated the appointment of an administrator who was appointed when a company had less than the required number of directors resident in Australia.
It seems to me that the application of s 1322 of the Corporations Act, in respect of the appointment of the liquidators as voluntary liquidators to four of the Companies, and to one of the Companies as voluntary administrator, is straightforward, although s 447A would also be available to validate their appointment as voluntarily administrators of the fifth Company. The Court may make an order under s 1322(4) of the Act declaring that an act purporting to have been done, or a proceeding purporting to have been taken, under the Act is not invalid by reason of a contravention of a provision of the Act. That provision extends to an order validating an act that does not comply with the requirements of the Act. Such an order may be made, relevantly, where any of the requirements in s 1322(6) of the Act are satisfied, including that it is just and equitable that the order be made.
In the present circumstances, it is just and equitable that the order be made, given the insolvency of the Companies and the desirability of an independent insolvency practitioner being in place in respect of each of the Companies. As I have noted, that order may ultimately not be necessary, so far as any contravention of s 201A of the Act is unlikely to invalidate the appointments, but it is desirable so far as it will provide certainty as to the position.

Approval of the contract of sale of the Revesby property

Next, the liquidators seek approval, nunc pro tunc, under s 477(2B) of the Act of their entry, in respect of several Companies, into the contract for sale of the Revesby property. I have referred to the circumstances of the sale of that property, as addressed in Mr Lock's evidence, above. Ms Zheng draws attention to my review of the relevant principles in Re Kevin Jacobsen Pty Ltd (in liq) [2016] NSWSC 538 where I observed, inter alia, that such an order may be made nunc pro tunc. Mr Lock's affidavit explains why approval was not sought, under s 477(2B) of the Act, from creditors for entry into the relevant contract.
The Court's power under s 477(2B) of the Act provides for oversight of a liquidator's actions and an order under that section confers or completes the necessary power to enter into an agreement where obligations of a party may be discharged by performance more than three months after the agreement is entered into, where it can be seen that a case for exercise of the power in the relevant circumstances has been established: Re HIH Insurance Ltd [2004] NSWSC 5 at [15] and see the other authorities cited in Austin and Black's Annotations to the Corporations Act at [5.477]. The Court's role is not to substitute its judgment for the liquidator's judgment on the commercial merits of the transaction, but instead to satisfy itself that there is no error of law or suspicion of bad faith or impropriety and determine whether there is any good reason to intervene in the transaction, having regard to the beneficial administration of the winding up.
Here, the evidence is that the liquidators have proceeded with the transaction, which has realised a value for the Revesby property that is at, or in the region of, the valuation advice that he has obtained; that the period negotiated for completion of that transaction had been set before the liquidators' appointment, so the choice facing them was to go ahead with that transaction, or run the risk that it would lapse; and there is nothing to suggest that there is any element of impropriety or any error of law in respect of the transaction. The transaction will, in practical terms, likely not extend the winding up, where there are other steps to be taken, having regard to the liquidator's evidence, in the winding up of the Companies in any event.
For these reasons, I am satisfied that an order should be made, nunc pro tunc, under s 477(2B) of the Corporations Act, conferring power on the liquidators to complete the relevant transaction, and the making of such an order will promote the interests of the external administration of each of the Companies.

Costs

An order is sought that the Plaintiffs' costs of the application be paid out of the assets of the Companies. That order is properly made where the application will have promoted the orderly conduct of the winding-up of each of the Companies.

Orders

For these reasons, I make orders in accordance with paragraphs 1-8 of the short minutes of order initialled by me and placed in the file which now includes an additional order 8 that the exhibits be returned.

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: 24 March 2019

Corporations Act 2001(Cth)ss 201A, 447A, 459A, 467, 477(2B), 1322, 1322(4), 1322(6)

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