Kamper v Applied Soil Technology Pty Limited

5405/03 WILLIAM KAMPER v APPLIED SOIL TECHNOLOGY PTY LIMITED JUDGMENT - Ex Tempore 1 HIS HONOUR: This is an application for the appointment of a provisional liquidator to Applied Soil Technology Pty Limited ("The Company"). 2 The Company was incorporated in 1995. It was in commercial terms a joint venture between three groups of people. The first was the plaintiff in these proceedings, Mr William Kamper, together with his brother, and a company J & M Waste Pty Limited ("J&M") which they were interested in. The second group was Mr and Mrs Gilmartin and a company which they were interested in called Shannongrove Pty Limited ("Shannongrove"). The third was Mr Simon Leake. 3 The Kamper family were people who had experience in the business of transporting and disposing of waste. The Gilmartins had experience in the processing of waste and its use as fertiliser for farms. Mr Leake was someone who was an agricultural scientist with knowledge of soil technology and the land application of commercial waste materials. 4 The Company was formed on the basis that Shannongrove Pty Limited would have forty-five percent of the shares, that Mr William Kamper would have forty-five percent of the shares and that Mr Leake would have ten percent of the shares. 5 There has been some suggestions in the evidence that there may have been a shareholders agreement contemplated between the parties, but the evidence before me does not establish, even at a prima facie level, what any such shareholders agreement might have been. 6 The present difficulty between the parties seems to have started in around August of 2002. At that stage there was a directors meeting at which Mr Leake raised the question of whether J&M should pay for waste which it delivered to the plant which was run by the Company. There was a resolution passed that J&M should pay what was described as a gate fee, in an amount to be negotiated. While there was some attempts to negotiate the quantum of a fee for the delivery of waste, they came to nothing. J&M continued to deliver waste to the Company, without making any payment. 7 Around September of 2002 some discussions began between the Gilmartins and the Kampers about the possible sale of Shannongrove's interest in the Company to the Kampers. It appears to be common ground that at that time an offer was put that the Kampers would buy Shannongrove out for $200,000, that the Gilmartins countered with a request for a higher price, and that the discussions went no further. 8 There is also evidence before me that in September of 2002 there was a conversation between Mr Leake and Mr William Kamper, in which Mr Kamper expressed the view that he was going to liquidate the Company. 9 In the latter part of the 2002 Mr Leake resigned from various positions he held in the Company. 10 Around May 2003 Mrs Gilmartin, who is the person who has day-to-day responsibility for the accounting and administrative work of the Company, began to raise invoices for waste which J&M had brought, and continued to bring, to the plant. She did this unilaterally, and in circumstances where the attempts to negotiate a gate fee had come to nothing. The accountant for J&M and for the defendant company had some discussions about this, which made quite clear that J&M did not now accept that any gate fee should be charged. 11 In June of this year, Mr Leake started proceedings in the Industrial Relations Commission of New South Wales under s 106 of the Industrial Relations Act 1996, seeking to have his contract of employment rewritten. He alleged that both the Gilmartin interests and the Kamper interests had caused business which should have gone through the Company to bypass it. His claim was one which was made not only against the Company, but against eight other respondents, including the directors of Shannongrove and of J&M. It sought payment of what he said was $208,000 of outstanding invoices, a royalty rate of eight percent on some products which he asserted had been diverted from the company, and various other sums. 12 There is also some evidence of circumstances in which J&M had taken waste which derived from companies whose waste had previously been delivered to the Company's plant, and taking it to a rival plant. The Kamper group say that they were perfectly entitled to do that, and that there had never been any undertaking that they would have an exclusive arrangement with the Company. 13 All these matters, however, have led to a situation where the Kampers and the Gilmartins have ceased to be able to get on. 14 The situation was compounded on 11 September 2003 when an officer of the Environment Protection Agency instructed that the plant from which the Company carried out a substantial part of its operations, in Robert Street Smithfield, should be closed down. This led to the Robert Street plant having its operations wound down. 15 On 24 September 2003 a load of waste deriving from J&M was delivered to the plant, which contained contaminated material. The evidence before me does not suggest that that was anything more than an unfortunate accident. It is accepted by Mr Kamper that that load has caused contamination to one of the twelve containers at the Robert Street premises. The Gilmartins say that its effect is more widespread than that. 16 On 3 October 2003 the employees who worked at the Robert Street plant were put off, and the plant was closed. 17 On 17 October 2003 there occurred what the Gilmartins assert was a general meeting of the Company, which removed the Kamper brothers as directors of the Company. The Kamper brothers dispute that it was a valid meeting. 18 By 20 October 2003 the plaintiff in these proceedings had instructed Blake Dawson Waldron to act for him. They wrote to the Company, requesting an undertaking that the remaining directors would not cause the company to (a) enter into any transaction outside the ordinary course of its business; (b) sell, disperse or deal with any of its assets other than in the ordinary course of business; or (c) appoint an administrator to the Company without the prior consent in writing of the Kampers. 19 Those undertakings were provided promptly, on the basis that they would last up to 5pm on Wednesday 22 October 2003. They have been extended from time to time since then. 20 On 23 October 2003 the originating process in this matter was filed in court. The originating process is one which seeks the winding up of the Company. Counsel for the plaintiff informs me that the basis on which the winding up will be sought is the just and equitable ground. Insolvency is not alleged. Also on 23 October 2003, an interlocutory process was filed in court, which sought the appointment of a provisional liquidator. 21 The basis upon which the provisional liquidator is sought is summarised in an affidavit which Mr Kamper swore on 22 October 2003. The first matter on which he relies is that the defendant has ceased trading, as is shown by its refusing to accept any further waste product and terminating its employees. It is common ground that operations at the Robert Street premises have ceased. The Gilmartins say that the operations of the company haven't ceased completely, however. They say that the company has at all times had an aspect of its business which they describe as the "direct to farm" business, and that that business is continuing, and indeed that the Robert Street aspect of the business was an unprofitable one and that the company will be in a better state now that it is rid of it. That allegation is one which is contested by Mr Kamper. The evidence before me does not let me find even on a provisional basis that one version is more likely to be correct than the other. 22 The second matter on which Mr Kamper relies is that there are some difficulties arising from the requirements of the Environment Protection Agency. Those are difficulties which relate to the Robert Street site. So far as they are established before me, they appear to arise from the delivery of the contaminated load on 24 September 2003. 23 The next matter on which the plaintiff relies is that Mr Leake is in dispute with the Company, and has begun legal proceedings against it. This is undisputed. 24 Next, Mr Kamper relies on the fact that debts are owing to related entities of the directors. He is concerned that the Gilmartins, in control of the company, will favour interests associated with themselves in debt repayment. The evidence relating to this does not establish any objective basis for this concern. The evidence has included listings of the accounts payable of the Company at three different dates this year, ranging from 31 July to 24 October. They show that the indebtedness to J&M has increased somewhat over the period from 31 July to 24 October, but that the indebtedness to Shannongrove has increased to a greater extent. 25 It is also clear that another concern of Mr Kamper arises from the invoices which Mrs Gilmartin has been raising for the gate fees for delivered product. Mr Kamper is concerned that the raising of those invoices is a device to raise charges which are unjustified, and which will result in the debt which is owed by the Company to J&M being offset. On the material before me, it appears that there is a bona fide dispute about the amount which should be charged, but there does not appear to be any grounds for bona fide dispute that something should be charged. 26 The next matter on which Mr Kamper relies is the exclusion of his brother and himself from the conduct of the affairs of the company. I am not in a position to make anything other than a provisional finding that there is a case to be tried concerning whether the exclusion of the Kampers was contrary to an understanding which the parties had when the Company was first set up. It may also be that there is an issue to be tried about the validity of the resolution which has excluded them. 27 The next concern expressed by Mr Kamper is a concern that the Gilmartins may be planning to dissipate the assets of the defendant. As I have earlier said, I do not see there as being a factual basis for this concern. 28 The final matter on which reliance is placed is that the books and records of the defendant may be being amended in a way which is favourable to the interests of the directors' related entity. The only objective basis which has been put before me for this allegation is the raising of the invoices for the gate fees which I have earlier referred to. 29 The appointment of a provisional liquidator has been held, by a Court of Appeal in this State, to be a drastic intrusion into the affairs of the company not to be contemplated if other measures would be adequate to preserve the status quo: Constantinidis v JGL Trading Pty Limited (1995) 17 ACSR 625 at 635. 30 Before a provisional liquidator is appointed, the Court should be satisfied that there are good prospects that a winding up order ultimately will be made and that there is evidence of a significant threat to the assets, which justifies the appointment of a provisional liquidator to preserve the assets pending the winding up hearing occurring: Natural Extracts Pty Ltd v Stotter (Hely J, Federal Court of Australia, 18 December 1998, unreported.) 31 In the present case, while it appears that the relationship between the parties has broken down, it is not something which follows of course from a breakdown in relations, even in a company which was set up as a company which was in effect an incorporated joint venture, that a winding up order will be made. The winding up of a company is a discretionary remedy, particularly when the application is made by a contributory rather than by a creditor: McPherson, Law of Company Liquidation, 4th ed (1999) page 168-174. Whether the order is actually made depends upon matters which include an offer for one party to buy out the other has been unreasonably refused. Mr Kamper's counsel states that Mr Kamper's previous desire to buy out Shannongrove has disappeared since Mr Leake's litigation has shown that the Company has a large potential liability (if only for the costs of the litigation); however counsel for the Company says that Mr and Mrs Gilmartin are interested in exploring buying out Mr Kamper's interest. 32 Today, counsel for the Company says that it will be alleging that there has been diversion of business opportunities of the Company by the plaintiff, and that there has been a breach of the plaintiff's fiduciary duty to the Company by using facilities of the Company for its own benefit without accounting to the Company. (This latter matter is causing J&M to deliver waste to the Company without paying any gate fee.) Those matters are, as I understand it, intended to be raised as an equitable defence to the making of a winding up order. They are also, as I understand it, matters which are intended to be relied upon by the Gilmartins. 33 In these circumstances, I am not satisfied there are good prospects that a winding up order will ultimately be made. By saying that, I am not expressing a view that it is likely it will not be made - that will depend upon the evidence at the time. 34 There are various undertakings which are proffered by Mr and Mrs Gilmartin until the determination of the principal proceedings. They are as follows:

That they will not without obtaining the written consent of all shareholders of Applied Soil Technology Pty Limited (AST), or alternatively without giving fourteen days notice to those shareholders cause AST to - (a) enter into any transaction outside the ordinary course of its business; (b) sell, dispose or deal with any of its assets other than in the ordinary course of its business; or

That they will not cause AST to sell any capital equipment without providing fourteen days notice to the shareholders of AST.

That they will not alter the basis upon which Mr and Mrs Gilmartin are paid salary by AST from the basis on which they are currently paid salary.

That they will not cause AST to pay to Mr Leake any amount in connection with his Industrial Court proceedings.

That they will file and serve and diligently prosecute a Notice of Motion seeking expedition of the principal proceedings. 35 In my view, those undertakings provide a preferable interlocutory regime to the appointment of a provisional liquidator. In light of them, and of the evidence, I am not satisfied there is sufficient threat to the assets to require appointment of a provisional liquidator. I dismiss the application.

Costs 36 The Company applies for costs of the present application. The basis on which that application is made is that in its Notice of Appearance filed 24 October 2003, the Company notified as grounds of opposition to winding up: that there was no appropriate basis for the order; that it was solvent and continuing to trade profitably; that there was no evidence that the assets of the defendant were being dissipated or likely to be dissipated; and that the appointment of a provisional liquidator would not be in the interests of the Company. 37 It will be apparent that some of those reasons are ones which are in substance, reasons which I adopted, but not all of them. As well, the Company relies on the fact that it gave, promptly, undertakings which the applicant asked for. The defendant submits that in circumstances where an application for an interlocutory order, like the appointment of a provisional liquidator or the granting of an interlocutory injunction, is refused, the outcome of the proceedings will not cast light on what the appropriate costs order concerning the interlocutory application should be. That seems to me to be correct. 38 It is true that the application was dismissed on the basis of the Court receiving undertakings which were somewhat more extensive than the undertakings originally proffered to the Court. Those extra undertakings were ones which arose in the course of argument, in which some questions were raised by me about the intended ambit of the undertaking concerning not carrying on business or disposing of assets other than in the ordinary course of business. The additional undertakings which were offered apart from the undertaking concerning seeking expedition of the proceedings, were ones which were intended to clarify the intent of the undertakings initially offered. In those circumstances, I do not regard the extension of the undertakings which had been offered as a matter which modified significantly the stance which the Company took at the outset of this application. 39 I order the Applicant to pay the costs of the Respondent of the application. **********

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