Solicitors:
Patane Lawyers (Plaintiff/Respondent)
William James (Applicant)
File Number(s): 2020/99032
[2]
Leave to sell certain property
By Interlocutory Process dated 6 April 2020, Mr Timothy Cook, in his capacity as deed administrator of the Natural Grocery Company Pty Ltd (subject to deed of company arrangement) ("Company") seeks the Court's leave under s 442C of the Corporations Act 2001 (Cth) to sell certain leasehold interests held by the Company which are subject to a claim for a security interest by Trumps Pty Ltd ("Trumps"). There is no dispute between Mr Cook and Trumps that the substantive order should be made, although both parties properly recognise that the Court must be satisfied that the basis of those orders is established before making them. There are disputes between the parties, which the Court has still to resolve, as to two other issues, relating to the circumstances in which proceeds of a sale of relevant assets could be dealt with and as to costs.
Mr Cook relies on his affidavit dated 6 April 2020, which refers to the circumstances in which he was initially appointed as voluntary administrator of the Company and subsequently appointed as deed administrator under a deed of company arrangement executed on 6 February 2020 ("DOCA"). Mr Cook points out that it is a condition precedent to the DOCA that the Company sells certain stores currently operated by it, being two stores situated in New South Wales and two stores situated in Queensland. The Company has now entered into a business sale agreement in respect of each of the stores, which contemplate dealings with leases, as to which Trumps has claimed a security interest.
The proceedings commenced, prior to the filing of Mr Cook's Interlocutory Process, after Trumps had lodged a caveat which was subsequently extended by consent. Correspondence has followed between the parties' solicitors, and it appears there is a dispute as to whether Trumps has an enforceable security interest over the relevant leases, and to the quantum of any security interest and as to the amount that would be secured by such an interest. It is not necessary to address those disputes today.
Mr Cook now proposes that the entire sale proceeds would be set aside and held pending the determination of the position in respect of Trumps' claim. On that basis, Mr Cook now seeks the orders under s 442C of the Act to which I have referred. That section relevantly provides that the administrator must not dispose of property of a company that is subject to a security interest, including where the company is subject to a deed of company arrangement, unless relevantly he or she does so in the ordinary course of the company's business, or with the consent of the secured party or lessor or with the Court's leave. Section 442C(3) provides that the Court may only grant such leave if it is satisfied that arrangements have been made adequately to protect the secured party or lessor's interest. Mr Cook extends the application to certain PPSA property, being property which is subject to a security interest as defined in s 51A of the Corporations Act by reference to s 12 of the Personal Property Security Act 2009 (Cth). Section 442C permits an order to be made under s 447C(2)(c) in respect of PPSA retention of title property, as defined in s 51F of the Corporations Act.
Mr Hynes, who appears for Mr Cook, rightly points out that orders under s 442C have been made, for example, where sale proceeds have been set aside pending the determination of a dispute about an alleged security in several cases, including a recent decision of Markovic J in Luxtown Pty Ltd (admins apptd) [2019] FCA 1861 at [28]. Mr Hynes also draws attention to my observation in Re Bluenergy Group Ltd (subject to a deed of company arrangement) (admins apptd) (2015) 107 ACR 373 at [92] that an order under that section may require that the Court also be satisfied that a disposition will not be likely to prejudice the interests of other creditors or the company, in addition to the party claiming security. Mr Hynes points out that, so far as an application is made under s 74MA of the Real Property Act 1900 (NSW) for a removal of a caveat, that may occur where adequate alternative security can be demonstrated.
Mr Hynes points out that, although Trumps has not provided written consent to the sale under s 442C(2)(b) of the Act, it does not actively oppose the relief that is sought. Mr Hynes submits, and I accept, that that supports an inference that the proposal now advanced by Mr Cook is sufficient to protect Trumps' interests. It seems to me that that is plainly the case, where the amount proposed to be held pending the determination of the dispute exceeds on any available view the amount that will be the subject of Trumps' security. Mr Hynes also submits, and I accept, that the proposed sale does not cause prejudice to other creditors, or to the Company, where it will realise significant assets of the Company and bring in moneys which would then be available to meet the claims of creditors, whether the claims of Trumps as a secured creditor, or the claims of creditors generally. The conclusions which I have reached have that result both in respect of the orders that are sought under s 442C(2)(c) of the Act in relation to the lease property but also in respect of the caveat and the PPSA retention of title property to which I have referred.
For these reasons, I am satisfied that orders in the form of paragraphs 2-4 of the short minutes of order, which I will in due course initial and place in the file, can properly be made.
[3]
Form of orders as to distribution of sale proceeds
I now turn to deal with the question of orders which may be made by the Court to determine the distribution of those proceeds, as to which the parties are in dispute. Paragraph 5 of Mr Cook's proposed short minutes of order provide that he will hold proceeds received from any sale disposal or other dealing with the leaseholds or the PPS property and not deal with such proceeds other than in accordance with an agreement with Trumps or further order of this Court including, in Mr Cook's version of that order, one made in disposal of the Interlocutory Process filed 14 April 2020 by Mr Cook in this proceeding. That Interlocutory Process involves an existing application to seek to determine the validity of Trumps' security interest. Trumps seeks to add an additional paragraph which provides for determination for the release of the funds by Mr Cook on the order of any Court of competent jurisdiction in which the existence, validity and extent of Trumps' security interest claim is the subject of a final order and Mr Cook opposes that addition.
Little turns on this dispute, since the form of order which I make will not in reality disadvantage any party, nor will it avoid any detriment that may arise from the commencement of duplicative proceedings which Trumps is currently contemplating. It appears that Trumps feels aggrieved that Mr Cook has sought a determination of the validity of Trumps' security by filing an Interlocutory Process in this Court to seek to determine those matters, in the existing proceedings, which Trumps perceives to be a pre-emptive step that ousts the jurisdiction of the Supreme Court of Queensland. I can understand Trumps may consider that Queensland may have been an appropriate jurisdiction for proceedings in the circumstances, or at least one that was closer to home. However, it seems to me that its sense of aggrievement is unjustified, because the Supreme Court (Corporations) Rules in this State, and the Harmonised Corporations Rules nationally, permit the use of an interlocutory process to determine substantive matters and that course is commonly taken by insolvency practitioners in insolvency matters for good reason, so as to reduce the costs of proceedings and allow multiple disputes in respect of the same insolvency to be determined in the same proceedings.
There is, of course, no difficulty of jurisdiction with the Supreme Court of Queensland, in its Commercial List or otherwise, determining other proceedings as to these matters. There will be a practical difficulty that, rather than the dispute being in issue in one proceeding, there will be two if Trumps commences separate proceedings, and the consequence is that either both Courts will continue those proceedings (each exercising their respective responsibilities) and one or other of them will determine the overlapping issues first, creating issue estoppels or a res judicata, or one or other proceedings will be stayed, or the parties will be put to additional costs of seeking to transfer one proceeding from one Court to the other Court. That is not a particularly attractive prospect, particularly where, as here, the Company's available assets are already unlikely to meet the claims of all creditors. The form of order which I am asked to make will not affect those difficulties.
It seems to me that I should nonetheless include the additional provision that is proposed by Trumps in Mr Cook's proposed orders. I take that course because this Court should not formulate its orders in a way that carried any implication that an order of another Court of competent jurisdiction would not be recognised. That is plainly not the case because, even if the additional provision sought by Trumps was not included, the Court would of course give effect to any determination of another Court that finally determined the matter, in making orders on the basis of any issue estoppel or res judicata that arose between the parties. I therefore add paragraph (c) which will refer the order of any Court of competent jurisdiction in which each of the existence, validity and extent of Trumps' security interest claim is determined. I have used the word "determined" in that order to avoid any arid dispute as to whether a determination of an Interlocutory Process in this Court, binding upon those parties, is properly characterised as a "final order", although it seems to me that it must be where the Corporations Rules permit final relief to be sought by such a process.
[4]
Costs
A question has also arisen as to the order for costs that could be made today. At one point there seemed to be a suggestion between the parties that costs should be reserved. Mr Cook now seeks an order that Trumps pay the costs of and incidental to the Amended Interlocutory Process filed 22 April 2020, which is only the version of the interlocutory process filed yesterday. Trumps, in turn, seeks two alternative forms of order, that is, costs of and incidental to certain things be paid to it as costs in the administration and out of the deed fund in priority, or alternatively that the Company or the deed administrator pay those costs.
I raised with the parties whether the proper course was to reserve the question of costs, on the basis that there is a dispute as to the validity of the security interest of Trumps and, if that dispute is resolved adverse to Trumps, then its position as to the recovery of its costs would be significantly weakened. Conversely, a determination favourable to Trumps may improve those prospects. Mr Monks, who appears for Trumps, submits that the Court should at least reserve only Trumps' costs of the application, on the basis that Mr Cook has been required to seek the leave of the Court today. I am not persuaded by that submission. It seems to me that Mr Cook was required to assist to seek the Court's leave because Trumps asserts the validity of its security. If it had at any point accepted that its security was invalid, then it is hardly likely that Mr Cook would have required an order of the Court to permit him to deal with property that was subject to that security. For this reason, it seems to me that the determination of the validity of the security will significantly impact the question of costs, and the Court will be much better informed in respect of that question when that issue is determined. For that reason, I will simply make an order that costs be reserved.
[5]
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: 19 May 2020