JS McMillan Pty Ltd & Ors v Commonwealth of Australia

Judgment 1REIN J: The applicants in this matter appealed pursuant to s 1321 of the Corporations Act 2001 (Cth) ("the Act") to this Court from a decision of a liquidator in relation to a tender process set in train by the liquidator of SCW Pty Ltd ("SCW"). The liquidator is the first respondent and SCW is the second respondent. The process permits tenders for assignment of certain assets of SCW, which I shall describe in a moment. 2The time for tenders to be made expires today at 4pm. On Thursday 2 May 2013 the applicants obtained an order for short service of its amended interlocutory process which includes an application for interlocutory injunction to prevent the liquidator proceeding with the tender process. That application was heard yesterday. 3SCW was placed in liquidation not because it was insolvent but rather because of deadlock in conducting the corporation's affairs due to irreconcilable differences between Ms Cantarella (the first applicant) and Mr Schirato (the first respondent) both then directors of SCW. SCW was the holding company and its assets included significant real estate. The Cantarella and Schirato interests have been responsible for a successful business operated by Cantarella Bros Pty Ltd which is a fresh foods wholesaler specialising in, amongst other items, coffee under the Vittoria brand. 4The liquidator, for whom Mr T. Jucovic QC and Mr V. Kerr appear, has engaged in a process of selling assets of SCW and the liquidation is, bar one matter, close to completion. In 2011, Mr Schirato indicated to the liquidator that he would be willing to purchase SCW's rights against Ms Cantarella in relation to her performance as a director of SCW. The liquidator was of the view that SCW had no viable causes of action against Ms Cantarella and, in reaching that view, he considered an advice by Mr Newlinds SC, a copy of which had been provided to Mr Schirato. In the advice Mr Newlinds had expressed the view that SCW has potentially several causes of action against Ms Cantarella. Mr Schirato, and the corporate entity with which he is connected, indicted he would be willing to pay $100K for those rights. 5Mr Izzo of counsel appears in these proceedings for Mr Schirato and Mr Schirato's company, who are the third and fourth respondents to the application. Mr A. Martin SC with Ms J. Richards appear for the applicants. 6The liquidator decided to seek judicial direction pursuant to s 479(3) of the Act as to whether he would be justified in not treating with Mr Schirato in connection with the claimed causes of action. Notice was given to Mr Schirato and Ms Cantarella and they were represented at the hearing before Brereton J. In SCW Pty Ltd [2013] NSWSC 302 his Honour Justice Brereton indicated that the liquidator would not be justified in refusing to treat with Mr Schirato. More details about the potential causes of action that Mr Schirato was interested in acquiring can be found in [3] - [9] of the judgment. 7Following on from Brereton J's decision on 12 February 2013, the liquidator had some further negotiations with the Schirato interests. After a lengthy process, the details of which I do not need to recount but which included receipt of complaints about the proposed tender process from Ms Cantarella, the liquidator established a process by which those parties who might have an interest in paying for an assignment to themselves of SCW's causes of action against any of the corporate officers of SCW would be given an opportunity to tender. Those officers, it is agreed, were; Ms Cantarella, Mr Schirato, Ms Wannan (an alternative director) and Mr Jones (the company secretary). 8On 12 April 2013, the liquidator sent out details of the tender: see pp 330-340, Exhibit EYZ6, exhibit to the affidavit of Elle Yao Zhang of 2 May 2013, which affidavit has been read in support of the applicants' interlocutory process and is Exhibit A. 9The tender offer sent out on 12 April 2013 invited tenders but made clear that: (1)The tender must not be less than $100K (2)The liquidator will accept the highest offer received if the tender terms have been complied with. (3)The liquidator will seek judicial approval for the execution of the deed of assignment and, if approval is given, execute the deed. 10The applicants claim that the tender process is flawed and that the liquidator's conduct in pursuing it is unreasonable, for four reasons: (1)Utilising a tender process as the method of sale is unfair, it is said, because it gives the tenderers no opportunity to better an offer made by another tenderer . (2)The inclusion of claims against "any past or present officer of the Assignor other than the Liquidator" or any other person which are connected in any way to any act or omission of any past or present officers of SCW is very wide and requires the liquidator, as part of the tender process, to identify precisely what claims there are against persons other than Ms Cantarella. The applicants accept that the claims against Ms Cantarella have been identified, or are sufficiently capable of identification, from material available but without information as to the other claims the tenderer, they submit, is impeded from offering as much as he or she might offer if he or she had information. In other words their contention is that the tenderer will discount the offer he or she will make. (3)The applicants contend that the terms of the indemnity which the liquidator has sought in the proposed deed of assignment is too wide : see clause 5.1 of Exhibit A, pp 338-339 which is in the following terms: The Assignee indemnifies and agrees to keep indemnified the Assignor against any and all claims, demands, losses, damages, costs, expenses and charges that the Assignor incurs as a result of the Assignee pursuing the Causes of Action including by commencing proceedings, excluding any claims, demands, losses, damages, costs, expenses or charges which relate in any way to any act, omission or other conduct of the Assignor or the Liquidator before or on the date of this Deed. (4)The applicants contend that the indemnity should be limited in time and amount and this argument seemed to centre on a contention was there will be costs of the litigation which will be unknown and the liquidator may, in defending any proceedings brought by way of cross claim against the company by the person sued by the successful tenderer, act unreasonably. They contend that the uncertainty of what the indemnity might involve for the assignee will prevent a tenderer from making his highest bid: see T29.5-34. (5)The tenderers are to provide cheques, and the successful tenderer's cheque will be held in the account of Piper Alderman, the solicitors for the liquidator, until the Court approves the execution of the Deed of Assignment. That, it is said, leaves the tenderer at risk that his or her money will not be returned by Piper Alderman which is the agent of SCW. These defects in the tender process, it is claimed by the applicants, will induce prospective tenderers not to bid as much as they might otherwise bid so that the liquidator will not fulfil his duty and obtain as much as he could for the rights which he is endeavouring to sell. 11The applicants, it is important to note, did not complain about the extent of persons to whom the tender letter has been sent. 12The applicants' written submissions include a reference to the principle that "the fundamental duty of a liquidator is to obtain the highest price possible for the company's assets sold by him" and cite McPhersons: The Law of Company Liquidation, 4th edition, A Keay (ed.) at 371-2 and to the fact that where an appeal under s 1321(1)(d) against a discretionary decision of the liquidator is brought, the Court will reverse the liquidator's decision "only when it is satisfied that he was acting unreasonably or in bad faith". A number of cases are cited in support of that proposition, the most recent of which Re Jay-O-Bees Pty Ltd (in liq) (2004) 50 ACSR 565 at [46], and see also [5] of Mr Izzo's submissions) where he makes reference to the same principle, citing several cases, including Re Jay-O-Bees Pty Ltd (in liq) and another recent decision of McGrath v Sturesteps (2011) 81 NSWLR 690, [73]. 13The applicants do not assert bad faith but they assert that the liquidator was not acting reasonably in deciding to sell the causes of action by tender on the terms of his letter dated 12 April 2013 for the four reasons to which I have already referred. 14In a context where the liquidator formed the view that the claims of the type advanced by Mr Schirato as being available to SCW were not viable notwithstanding an advice from Senior Counsel which was provided to Mr Schirato (a view which, it would appear from Brereton J's judgment, was coincident with Ms Cantarella's view on the matter), and where liquidator was directed not to ignore Mr Schirato's offer of $100K, the liquidator had a choice of dealing with only Mr Schirato or expanding the range of potential assignees to all former officers of SCW, or even beyond. 15Since no point is taken that there was any unreasonableness in not offering the assignment to anyone outside the circle of former officers (or their corporate entities) the decision of the liquidator to provide Ms Cantarella the opportunity to purchase the rights (and hence stymie the claims which it seems Mr Schirato would like to advance against her as assignee of the rights of SCW) is in issue. This decision seems fair and reasonable. I accept that the use of tender was not ventilated before Brereton J but his Honour was clearly alive to the possibility that Ms Cantarella might wish to avoid litigation against herself and that it might prompt her to make an offer in excess of that made by Mr Schirato, although his Honour did not stipulate that the liquidator had to offer the rights to Ms Cantarella: see [12] and [23] of Brereton J's judgment. 16The inclusion of claims against officers other than Ms Cantarella seems reasonable as well particularly since the liquidator does not view the prospective claims against Ms Cantarella as viable. The applicants do not complain that the addition of the causes of action outside those against Ms Cantarella was unreasonable but rather criticised the lack of specificity and information about those potential claims. 17It seems to me, in the very unusual circumstances of this case, that the decision made by the liquidator to expand the claims and to use a tender process was entirely reasonable. I do not think it was incumbent on the liquidator, knowing Mr Schirato was willing to pay $100K to investigate other potential claims against officers of the company, and even less so when all of the prospective tenderers were in fact officers of the company and at least as well placed as the liquidator with knowledge of the events in SCW's corporate history. 18I do not think the decision relied on in JS McMillan Pty Ltd & Ors v Commonwealth of Australia (1997) 147 ALR 419, 423-425, a decision of Emmett J, as his Honour was then, offers any support for the applicant's position save to demonstrate that it can be contemplated that tenderers may reduce their bid to take into account uncertainties. 19I accept Mr Martin's point that with a tender process the person tendering does not know what others have bid and that they have no opportunity to better that bid, but that is the process. Sale by tender is a legitimate method of selling property and it does not appear to me to involve an unreasonable commercial decision. Whether it is likely to yield a higher or lesser figure then private negotiations, or some sort of round table auction as Mr Martin seemed to suggest was an alternative, is a matter on which the liquidator is required to exercise a commercial judgment and he has done so. 20The tender process offers an equal opportunity to all former officers of SCW to put their best (if any) offer forward. I think the tender process adopted has the further advantage of reducing the involvement of the liquidator in some sort of negotiational bidding process that may be difficult to control and, as Mr Izzo pointed out, could very easily drag the liquidator into litigation. 21I accept that the prospect of Mr Schirato bidding $100K or more for claims that Ms Cantarella believes or may believe are worthless, places her and her interests in a difficult position, but that difficulty does not stem from anything done by the liquidator. At least the tender process permits her to endeavour to buy off the claims if she wishes to do so. Any monies spent by the successful tenderer will be shared between the Schirato and Cantarella interest as they each had a 50% share in SCW. 22I should note that in the course of submissions, Mr Martin submitted that there is good reason to believe that Mr Schirato's desire to obtain causes of action against Ms Cantarella is for an improper purpose. That contention was not advanced before Brereton J and was not part of the grounds for interlocutory relief or final relief in the amended interlocutory process on which the applicants now move. The applicants have not directly sought to attack the tender process on the basis that no causes of action should be assigned by SCW. Indeed, that is inconsistent with the judicial direction given by Brereton J. 23The next point to be dealt with is the indemnity. In assigning the causes of action, there is every reason to want to ensure that the assignee will indemnify the corporation for any cost or expense to it arising out the assignment. There is a "carve out" of claims which relate to acts or omissions by SCW or the liquidator before the date of the deed, so on one view the indemnity is not as fulsome as it could be. The liquidator seems to have in mind a concern that should the successful tenderer bring proceedings, against say Ms Cantarella, which leads to a cross-claim against SCW by Ms Cantarella, then SCW will need to be protected against incurring any costs arising from those proceedings. The prospect that the liquidator might act unreasonably in resisting the cross-claim and yet may recover under the indemnity from the assignee may lead a prospective tenderer to be cautious but the limited prospect of such conduct is far less significant than the prospect that all of the costs of SCW in defending any cross-claim brought by Ms Cantarella (for example) will be the subject of indemnity. Mr Schirato, I was informed, has indicated to the liquidator that he finds the wording acceptable but, in any event, the liquidator is entitled to seek a level of protection whether or not it induces caution in the tenderer ,and the indemnity wording is, in my view, reasonable. 24The final matter is the question of how the funds are to be held. I am by no means persuaded that there is any real basis for concern about this aspect. Not only is the wording suitable to one of the potential bidders, Mr Schirato, but as Mr Jucovic pointed out, if the liquidator decides to proceed with an offer and the Court does not approve the assignment, he will be required to refund the money held in the Piper Alderman trust account, which is, in effect, held in trust for the unsuccessful bidder. However, at my invitation, Mr Jucovic obtained instructions and gave an undertaking to the Court in the following terms, at T47-48 of the transcript: If the court does not give directions that the liquidator would be justified in exercising his powers to assign the cause of action and thereby enter into the deed of assignment, the liquidator will as soon as practicable thereafter return the money, paid into Piper Alderman's trust account to the selected tenderer. 25Mr Martin complained that even that was not sufficient because the tender terms had not been amended. Since the Cantarella interests and the Schirato interests are represented here today, and the liquidator also undertook to notify the remaining two potential bidders who are not represented in these proceedings, of the terms of the undertaking to which I have referred by 6pm last night, I cannot see this as being an impediment. 26It will be apparent, from what I have said, that I have considerable doubt as to whether a serious question as to the reasonableness of the liquidator's decision to proceed with the arises. However, assuming in favour of the applicants that there is such a question to be tried, in my view the applicants' case is a very weak one. 27Under the assumption that the applicants do have an arguable case, the respondents pointed out that because the liquidator will not be entering into an assignment of the causes of action without Court approval there is a ready opportunity for the applicants to attack the process and have their appeal against the liquidator's decision to proceed by tender deal with at the same time as judicial direction is sought. There is really no discernible prejudice to the applicants in permitting the tender process to proceed. Further, the process can be completed without any further delay should the applicants fail in their attack on the final basis, and should the Court take the view that the deed of assignment should be entered into by the liquidator. 28The respondents also asserted that there has been undue delay on the part of the applicants in having their application to stop the tender process heard only yesterday, with proceedings commenced on 2 May 2013. Mr Martin pointed out that although the liquidator responded on 18 April 2013 to the applicants' solicitor's letter of 16 April 2013, the applicants sought further clarification on 24 April. Given the 7 May deadline for submissions, I am inclined to think it was not reasonable for the applicants to take no action until effectively Thursday 2 May 2013 to bring on this application, particularly since the liquidator has made his position clear and indicated his willingness to agree to an expedited final hearing. Nevertheless I do not rely on delay to reach my conclusion. The weakness of the applicants' case and the fact that judicial approval needs to be sought for any assignment are sufficient matters to lead me to refuse the injunctive relief sought.