The plaintiff, Foot Traffic Media Pty Ltd (Foot Traffic) is the largest unrelated creditor of the first defendant.
The first defendant is Ambient Advertising Pty Ltd (in liquidation) (Ambient Advertising).
The second defendants, Mr John Vouris and Mr Bradley John Tonks (the liquidators), are the liquidators of Ambient Advertising, and are sued in that capacity.
By originating process filed on 9 June 2015, Foot Traffic seeks orders for the appointment of Mr Nicholas James David Crouch (the special purpose liquidator) as an additional liquidator of Ambient Advertising for certain special purposes, together with appropriate orders to enable the special purpose liquidator to execute a funding agreement under which Mr Michael John Akers (the Funder) will provide funding to Ambient Advertising and the special purpose liquidator to carry out the special purposes.
The Funder is the sole company director and sole shareholder of Foot Traffic.
As I have noted, Foot Traffic is a substantial unsecured creditor of Ambient Advertising, and appears to be owed about two thirds of the debt owed by that company to unrelated creditors.
Lo v Nielsen & Moller Autoglass [2015] NSWSC 1079 | Case summary | Zoe
The liquidators were first appointed as voluntary administrators of Ambient Advertising on 4 April 2014. (For the sake of simplicity I will refer to the liquidators by that name, even in respect of the period during which they were acting as administrators).
They were subsequently appointed as liquidators of Ambient Advertising on 18 July 2014, pursuant to the resolution of creditors under section 439C(c) of the Corporations Act 2001 (Cth). Accordingly, the liquidators are conducting a creditors' voluntary winding up.
In essence, the reason why Foot Traffic has applied to the court for the orders that it seeks in these proceedings is that, as a result of meetings with the liquidators, of the liquidators' preliminary investigations (as administrators), and reports provided to creditors, it appears that Ambient Advertising may have various rights of recovery, primarily against related parties, or parties who were formerly related to the company. The winding up is unfunded, and the liquidators have not been able to complete their investigations in a satisfactory way. The Funder is prepared to provide a significant amount of funding to enable the necessary investigations to be carried out, and if appropriate, to pursue recovery actions. For various reasons, however, the Funder is not prepared to provide the funding if the investigations and proceedings are carried on by the liquidators.
Foot Traffic makes no claim that the liquidators ought to be replaced, and has not sought an order to that effect.
A letter written by the solicitors for the liquidators to my associate is in evidence. The letter advises that the liquidators consent to the orders sought by Foot Traffic. The solicitors advise the court that, without disrespect, the liquidators would not appear, because the winding up is unfunded, and the liquidators must avoid incurring unnecessary costs.
The originating process identifies the matters in respect of which the special purpose liquidator would be appointed to act as liquidator of Ambient Advertising by means of a schedule. As I understand the evidence, Foot Traffic, the special purpose liquidator, and the liquidators, with the aid of their legal representatives, have considered and negotiated a slightly amended list of the matters which would define the role of the special purpose liquidator, if he is appointed. I was told that one of the objectives of this exercise was to ensure that there would be a clear and proper delineation of the matters in the liquidation of Ambient Advertising that would be required to be dealt with by the special purpose liquidator on the one hand, and the liquidators on the other.
The agreed Schedule of matters, which was included in the draft form of the orders that the court has been asked to make, is as follows:
SCHEDULE
1. Any and all dealing, transfer or disposition of any asset owned legally or beneficially by the Company (including by way of purported management fees or other similarly described fees) to:
(a) Wazfor Pty Limited;
(b) Vi Zoo Pty Ltd (in liquidation);
(c) Mouse Trap Media Pty Ltd; or
(d) any other Associated Entity (as that term is defined in the Act) of any director, former director, shareholder or former shareholder of the Company.
2. Any and all provision of Company funds, whether by loan or otherwise, to Titan Media Group NZ Pty Ltd.
3. Any dealing, transfer or disposition of assets or undertaking of the Company to Revolution Three Sixty Pty Ltd.
4. Any and all invoices issued by the Company to "Starcom Melbourne" or "OMD NSW", including any reversal of such invoices.
5. In relation to any and all claims that the Company may have (or may have had) against Mr Milan Bozic:
(a) any such claim;
(b) any purported release by the Company of any such claim against Mr Bozic, and
(c) any potential challenge to the validity or enforceability of any such release; and
(d) any claim that the Company may have against any person regarding entry into such a release.
6. Any purported liability of the Company to either City Bay Pty Ltd or Venice Media Pty Ltd, including under any claimed right of subrogation.
7. Any potential breach of duty (whether under any statutory provision, at common law or in equity) by any director or former director of the Company, in respect of any of the matters specified in items 1 to 6 above or otherwise.
8. The solvency of the Company at any time prior to its entry into liquidation, including any potential breach by any director or former director (including any shadow or de facto director) of the Company of section 588G of the Act.
The evidence provided by Foot Traffic in support of its application took the form of addressing each of the paragraphs in the Schedule, and identifying by reference to minutes of meetings, and the reports prepared by the liquidators, the essential reasons why it will be in the interests of the creditors of Ambient Advertising for those matters to be further investigated, and if appropriate, proceedings be instituted for the purpose of achieving recoveries for the benefit of the creditors.
Paragraph 1 of the Schedule is concerned with the transfer or disposition of Ambient Advertising's assets (including by way of purported management fees) to 3 identified companies, and any other associated entities. The directors and shareholders of the identified companies either are, or were until relatively recently, directors of Ambient Advertising, and the shareholders in those companies are associated with those persons. The evidence shows that amounts of $1,328,246 (in total), $35,827 and $160,182 have apparently been paid as "management fees" to the three companies respectively over recent years.
It is sufficient to note that the reports prepared by the liquidators disclose that the liquidators have not been able to obtain sufficient records to substantiate the appropriateness of these payments.
The company identified in par 2, Titan Media Group NZ Pty Ltd (Titan), is a company of which the present director of Ambient Advertising, Mr Mark Robert Fishwick, was a director between 16 May 2011 and 2 April 2015. There is some evidence that Ambient Advertising may be a creditor of Titan in the amount of $1,159,433 (as disclosed in that company's balance sheet), although there is a suggestion that the debt may only be for $265,355, or alternatively not a debt or at all, but rather an investment of equity in Titan. The liquidators have not been able to obtain documents to resolve these doubts.
As to par 3 of the Schedule, Ambient Advertising apparently ceased to trade in December 2013. The company referred to in that paragraph, Revolution Three Sixty Pty Ltd, may have been established by Mr Fishwick to continue the business of Ambient Advertising. The evidence is at present unclear as to whether there were any dealings, transfers or dispositions of the business or any assets of Ambient Advertising to that company.
Paragraph 4 of the Schedule concerns the reversal of invoices that Ambient Advertising had delivered to the businesses identified. The amount involved totalled $56,224.30. The liquidators did not contact the debtors to substantiate the reasons for the reversal of the invoices.
Mr Milan Bozic, who is referred to in par 5 of the Schedule, was a director of Ambient Advertising between 17 May 2002 and 29 October 2013, and is a former shareholder in that company. It appears that Mr Bozic may have directed that Ambient Advertising make the "management fee" payments that are referred to in par 1 of the Schedule.
Furthermore, on 29 October 2013, a settlement was entered into by Mr Fishwick and Mr Bozic that led to the latter withdrawing from his interest in Ambient Advertising. Mr Bozic retired as a director and transferred his shareholding to Mr Fishwick or related interests.
It appears that Ambient Advertising, as part of the settlement, released Mr Bozic from any claims it may have had against him, in exchange for Mr Fishwick obtaining the benefit of acquiring Mr Bozic's shares in the company. It may be that Ambient Advertising obtained no benefit from participating in that transaction.
It appears from the reports issued by the liquidators that Mr Bozic may be (or may have been) indebted to Ambient Advertising in the amount of $369,958.
As to par 6 of the Schedule, City Bay Pty Ltd (City Bay) and Venice Media Pty Ltd (Venice Media) claim to be creditors of Ambient Advertising in the amounts of $197,190.14 and $957,913.30 respectively.
The liquidators did not admit City Bay's proof of debt for voting purposes, when they were administrators of Ambient Advertising, because they had been provided with insufficient documents to support the claim.
Mr Fishwick is the sole director of Venice Media, and its sole shareholder. Its claim to the debt of $957,202 appears to arise out of an assignment of a debt owed by Ambient Advertising to the National Australia Bank Ltd, which took place before the liquidators were appointed as administrators of the company. Venice Media apparently makes a claim based upon subrogation by reason of that company discharging Ambient Advertising's debt to the NAB.
The liquidators have not been able to ascertain how the money that Ambient Advertising borrowed from the NAB was paid out, but the liquidators have reported that part of the money was paid to related companies as management fees, part was paid as settlement funds, and part was paid to unidentified parties.
In relation to par 7 of the Schedule, the liquidators reported to Ambient Advertising's creditors that they reported the director of the company to ASIC, pursuant to section 438D of the Corporations Act in relation to breaches of his director's duties of care and diligence and good faith, and also for insolvent trading. The liquidators also reported that ASIC had advised that it did not intend to carry out an investigation of the matters raised.
At a creditors' meeting during the administration of Ambient Advertising, it was noted by the chairperson of the meeting, on behalf of the liquidators, that subject to funding, should Ambient Advertising be wound up, the liquidators should carry out examinations, pursue recovery of preference payments, seek to recover other voidable transactions, and institute proceedings for insolvent trading.
The liquidators reported, in relation to par 8 of the Schedule, that they believed that Ambient Advertising had been trading while insolvent since at least 30 June 2012. The value of the insolvent trading claim has been estimated by the liquidators at $366,788, with the likely cost of recovery being in the vicinity of $30,000.
I have summarised the evidence put before the court by Foot Traffic in support of its claim that it would be in the interests of Ambient Advertising's creditors for a special purpose liquidator to be appointed, in relation to each of the matters listed in the Schedule, in bare outline.
As Barrett J (as his Honour then was) observed in Lo v Nielsen & Moller Autoglass (NSW) Pty Ltd [2008] NSWSC 407 at [8]: "It is, of cause, neither necessary nor appropriate to make findings on these matters at this point. But it can be said that they point to a need for investigation by the liquidator of Nielsen & Moller and indicate a possibility that various recovery proceedings might be pursued or, at least, considered by the liquidator in the interests of creditors".
As I have noted above, the Funder is only prepared to enter into the funding agreement in favour of Ambient Advertising if a special purpose liquidator, other than the liquidators, is appointed to conduct the winding up in relation to the matters listed in the Schedule. That is, in part, because of a belief that other persons within the firm of accountants of which the liquidators are members have had some association with parties who are related to the parties who managed Ambient Advertising, before it was put into administration, and also the Funder is discontent with the level of energy with which the liquidators have thus far pursued those matters. I merely record the position of the Funder, but by doing so I do not give it my imprimatur.
There is in evidence a proposed funding deed, which has been agreed between the Funder and the special purpose liquidator, into which the parties will enter if the court makes the orders sought by Foot Traffic. The draft funding deed will be made a confidential exhibit.
The special purpose liquidator has given evidence that the terms of the draft funding deed are within the normal range of such deeds as may be entered into from time to time by commercial litigation funders. I have read the draft funding deed, and agree with the special purpose liquidator. I note that the percentage of any amounts recovered that are to be paid to the Funder in priority to being paid to Ambient Advertising, at 30%, is reasonable.
The special purpose liquidator has also given evidence that he explored the possibility in June of this year of obtaining funding from 4 commercial funders that was more advantageous than the funding offered by the Funder. None of the commercial funders were prepared to offer more competitive terms than the terms offered by the Funder.
I am satisfied by the evidence that the special purpose liquidator is competent and qualified to be appointed to that office.
In the present case, the activities of the liquidators are hamstrung by the absence of adequate resources to fund the winding up. If the orders sought by Foot Traffic are made, no difficulty will arise concerning the allocation of the financial resources of Ambient Advertising as between the liquidators and the special purpose liquidator. The fees and costs incurred by the special purpose liquidator will be funded entirely by the Funder. The Funder will indemnify Ambient Advertising and the special purpose liquidator in relation to any costs and liabilities that arise as a result of the special purpose liquidator carrying out his duties.
The position clearly is, therefore, that if the court does not make the orders sought by Foot Traffic, it is highly likely that the matters listed in the proposed Schedule to the orders will not be investigated properly, and any avenues that may be available to obtain recoveries on behalf of the creditors of the company will not be pursued.
I am satisfied that it would be beneficial to the administration of the winding up, and in the interests of the general body of creditors, for a special purpose liquidator to be appointed to pursue the matters identified in the Schedule to the proposed orders. Save for the percentage that will be paid to the Funder in respect of any recovery, any recoveries that result will benefit the creditors as a whole. Foot Traffic should not achieve a position of superior claim upon the recoveries unless it is successful in a subsequent application under s 564 of the Corporations Act (which is unlikely to be available to Foot Traffic because the Funder will enter into the funding agreement, rather than Foot Traffic providing an indemnity to the liquidators): see Lo v Nielsen & Moller at [22].
An additional reason for the court to make the order appointing a special purpose liquidator is that, on the evidence, there is a possibility that the liquidators will institute proceedings against Foot Traffic to recover a preference. The Funder has given evidence that Foot Traffic will resist any such application. The Funder has also said that he would be unwilling to provide funding to Ambient Advertising in respect of the matters listed in the proposed Schedule, if the liquidators were to act in the winding up of the company in respect of those matters, at the same time as they pursued a claim against Foot Traffic for recovery of a preference. I can see how, in a practical sense, a conflict may arise if, at the one time, the liquidators were pursuing a claim against Foot Traffic, at the same time as the Funder was providing funds for the pursuit of the matters listed in the Schedule.
I am satisfied that the court has jurisdiction to appoint an additional or special purpose liquidator in the manner sought by Foot Traffic, notwithstanding that the liquidation is a creditors' voluntary winding up. I respectfully adopt and apply the reasoning given by Barrett J in Lo v Nielsen & Moller at [25] to [31], which I need not repeat.
Foot Traffic also asks the court to make an order under s 477(2B) of the Corporations Act, as the funding deed may end, or the obligations under it may be discharged, more than 3 months after the deed is entered into.
As Black J said in In the matter of Mustang Marine Australia Services Pty Ltd [2012] NSWSC 620 at [3]: "In granting approval for the entry of such an agreement, the court is not concerned with matters of commercial judgment but is concerned to be satisfied that if the entry into the agreement is a proper exercise of power and not ill-advised or improper on the part of the liquidator…"
In In the matter of One.Tel Ltd [2014] NSWSC 457 Brereton J said at [26]:
The principles applied to applications for approval under s 477(2B) have been helpfully summarised by Gordon J in Stewart, in the matter of Newtronics Pty Ltd [2007] FCA 1375 (at [26]) and by Hasluck J in Re The Bell Group Ltd (in liq) [2009] WASC 235 (at [57]-[58]), in terms that are equally applicable to applications under s 477(2A). The role of the court is to grant or deny approval to the liquidator's proposal, not to reconsider every issue considered by the liquidator, nor to develop some alternative proposal which might seem preferable. In reviewing the liquidator's proposal, the court pays due regard to his or her commercial judgment and knowledge of all of the circumstances of the liquidation, but satisfies itself that there is no error of law or ground for suspecting bad faith or impropriety, and evaluates whether the proposal is consistent with the expeditious and beneficial administration of the winding up. Importantly, the court's approval is not an endorsement of the proposed agreement, but merely permission for the liquidator to exercise his or her own commercial judgment in the matter. Thus the approval confers, or completes, the liquidator's power to enter into the transaction, but does not amount to the court approving the transaction itself. The distinction is material, because it means that - unlike a direction under s 479(3) or s 511 - an approval under s 477(2A) or (2B) alone does not exonerate the liquidator from personal liability.
I am satisfied that, for the reasons that I have set out above, I should make the orders sought under s 477(2B).
Accordingly, I will make orders in terms of the draft that I have been advised has been agreed between Foot Traffic, the special purpose liquidator and the liquidators:
1. Exhibit "MJA-2" to the affidavit of Michael John Akers sworn on 2 June 2015 be kept confidential and not be disclosed without leave of the Court.
2. Pursuant to sections 511 and 472(1) of the Corporations Act 2001 (Cth) (Act) Nicholas James David Crouch be appointed as an additional liquidator to the first defendant (Company) for the limited purposes specified in paragraphs 4 and 5 below (the Special Purpose Liquidator).
3. The Court declares pursuant to section 511 of the Act that the Special Purpose Liquidator would be justified in executing, on his own behalf in his capacity as Special Purpose Liquidator and on behalf of the Company, a funding deed in substantially the same form as the document set out at pages 315 to 332 of Exhibit "MJA-2" to the affidavit of Michael John Akers sworn on 2 June 2015, amended by substituting the Schedule to these orders for the schedule included in the draft deed (Funding Deed).
4. Leave be granted pursuant to sections 506(1A) and 477(2B) of the Act, for the Special Purpose Liquidator to enter into the Funding Deed on behalf of the Company.
5. The Court declares pursuant to sections 511 and 473(8) of the Act that:
1. the appointment of Special Purpose Liquidator is limited to the matters set out in paragraphs 5(b) to 5(d) below;
2. the following things may be done by the Special Purpose Liquidator on behalf of the Company:
1. conducting investigations into any of the matters set out in the Schedule, including by:
(A) inspecting the books and records of the Company, excluding any files and working papers of the second defendants;
(B) conducting examinations pursuant to sections 596A or 596B of the Act or obtaining orders for production pursuant to section 597(9) of the Act; and
(C) requiring statements to be provided pursuant to section 475(2) of the Act; and
1. pursuing any claim, including by commencing legal proceedings, that may be available to the Company or the Special Purpose Liquidator in relation to any of the matters set out in the Schedule, including considering and obtaining legal advice in respect of pursuing any such claim;
1. in relation to only those matters set out in the Schedule, the Special Purpose Liquidator may take any steps, including by commencing legal proceedings, to preserve or protect the assets of the Company, whether or not in the possession of the Company;
2. in relation to only those matters set out in the Schedule, the Special Purpose Liquidator, as an additional liquidator of the Company, is entitled to exercise solely for the purposes specified in paragraphs 5(b) and 5(c) above, all powers conferred on a liquidator by section 506 of the Act, except for the powers contained in sections 477(1)(a);
3. the second defendants must not do any of the things specified in paragraph 5(b) in relation to the matters set out in the Schedule, other than with the prior written consent of the Special Purpose Liquidator (such consent not to be unreasonably withheld) or further order of the Court;
4. the second defendants use their reasonable endeavours to assist the Special Purpose Liquidator by providing any documents or information previously prepared or obtained by them in investigating or pursuing any claim in relation to any of the matters set out in the Schedule;
5. the Special Purpose Liquidator shall in accordance with the requirements of the Corporations Act 2001 report to creditors of the Company initially on the terms of his appointment and subsequently during the course of his appointment; and
6. the second defendants otherwise do all other things required or authorised by the Act as liquidators of the Company.
1. The Court notes the undertaking to the Court of the Special Purpose Liquidator that he will not look to or assert any entitlement to resort to, funds or property of the Company and available to the liquidators to recover his fees and expenses in respect of his appointment, other than:
1. in accordance with the terms of the Funding Deed; or
2. out of assets or benefits recovered by him during the course of his appointment as a Special Purpose Liquidator of the Company,
and in each case in accordance with s 473 of the Act.
SCHEDULE
1. Any and all dealing, transfer or disposition of any asset owned legally or beneficially by the Company (including by way of purported management fees or other similarly described fees) to:
(a) Wazfor Pty Limited;
(b) Vi Zoo Pty Ltd (in liquidation);
(c) Mouse Trap Media Pty Ltd; or
(d) any other Associated Entity (as that term is defined in the Act) of any director, former director, shareholder or former shareholder of the Company.
2. Any and all provision of Company funds, whether by loan or otherwise, to Titan Media Group NZ Pty Ltd.
3. Any dealing, transfer or disposition of assets or undertaking of the Company to Revolution Three Sixty Pty Ltd.
4. Any and all invoices issued by the Company to "Starcom Melbourne" or "OMD NSW", including any reversal of such invoices.
5. In relation to any and all claims that the Company may have (or may have had) against Mr Milan Bozic:
(a) any such claim;
(b) any purported release by the Company of any such claim against Mr Bozic, and
(c) any potential challenge to the validity or enforceability of any such release; and
(d) any claim that the Company may have against any person regarding entry into such a release.
6. Any purported liability of the Company to either City Bay Pty Ltd or Venice Media Pty Ltd, including under any claimed right of subrogation.
7. Any potential breach of duty (whether under any statutory provision, at common law or in equity) by any director or former director of the Company, in respect of any of the matters specified in items 1 to 6 above or otherwise.
8. The solvency of the Company at any time prior to its entry into liquidation, including any potential breach by any director or former director (including any shadow or de facto director) of the Company of section 588G of the Act.
[2]
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Decision last updated: 05 August 2015