Mackenzie v Rees

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

1378/89 - TAHORE HOLDINGS PTY LIMITED (IN LIQUIDATION) JUDGMENT 1 On 27 April 1989, this court ordered that Tahore Holdings Pty Limited be wound up under the Companies (New South Wales) Code and that J B Harkness be appointed liquidator. This followed an earlier order appointing Mr Harkness as provisional liquidator upon an application made by the company itself. The present applicant, Mr Kershaw, was, by order made on 3 November 2003, appointed liquidator in succession to Mr Harkness. By notice of motion filed on 22 April 2004, Mr Kershaw seeks directions under s.379(3) of the Companies (New South Wales) Code as to the appropriate manner of application and disposition of certain funds in his hands as liquidator. 2 The fact that Mr Kershaw frames his application by reference to the Companies (New South Wales) Code makes it necessary, as a first step, to confirm that it is that legislation that continues to govern the matters in respect of which the guidance of the court is sought. That question is relevant not only to the jurisdiction to be exercised but also to the substantive issues on which Mr Kershaw seeks directions. 3 The Companies (New South Wales) Code, being the provisions of the Companies Act 1981 (Cth), as amended and interpreted pursuant to the Companies (Application of Laws) Act 1981 of the State, applied as a law of the New South Wales at the time of the making of the order for winding up on 27 April 1989. The operation of that Code was, for most purposes, superseded and displaced when, on 1 January 1991, the Corporations (New South Wales) Act 1990 of the State brought into effect the Corporations Law of New South Wales, being the Corporations Law set out in s.82 of the Corporations Act 1989 (Cth) as modified by the New South Wales legislation. Section 601 of the Corporations Law of New South Wales was in the following terms: "The provisions of this Law with respect to winding up do not apply to any body corporate the winding up of which was started before the commencement of this Chapter and: (a) any such company is to be wound up in the same manner, and with the same incidents, as if this Law had not been enacted; and (b) for the purposes of the winding up, the previous law of this jurisdiction corresponding to this Chapter is taken to remain in force and to apply, with such modifications as the circumstances require, as if a reference in that previous law to the NCSC were, except in relation to a time before the commencement of section 254 of the ASIC Law, a reference to the Commission." 4 This provision came into operation on 1 January 1991. Its effect was to cause the winding up of Tahore Holdings to continue to be governed by the Companies (New South Wales) Code. When the Corporations Act 2001 (Cth) came to supersede the Corporations Law of New South Wales, for most purposes, on 15 July 2001, s.601 of that Corporations Law was continued in force by s.1408 of the Corporations Act. The statutory provisions governing the winding up of Tahore Holdings therefore continue to be those of the Companies (New South Wales) Code. 5 I turn to the matter on which Mr Kershaw seeks guidance. The winding up has reached a point where all assets have been realised and a fund of cash remains in the liquidator's hands after payment of all debts as proved and admitted. One creditor, City Training & Education Centre Pty Ltd, originally lodged a proof for $176,949.48 which it afterwards supplemented or amended by adding a claim for interest on that sum. The interest claim had two aspects to it. There was a claim for $6,743.47 "interest pre-liquidation" and a claim for $195,361.33 "interest post-liquidation". The debt itself is a judgment debt. The judgment was entered upon a verdict for $176,949.48 ordered by Rogers CJCommD in a damages action in the then Commercial Division of this court on 2 February 1989, that is, somewhat less than three months before the winding up order was made. The sum of $6,743.47 represents interest at court rates from 2 February 1989 until the making of the winding up order and the sum of $195,361.33 represents interest at court rates from the date of the winding up order to lodgment of the revised proof of debt. 6 The question arising is as to the correct treatment of the claim for "post-liquidation" interest. 7 The provisions governing debts and clams admissible to proof in this winding up are those found in s.438 of the Companies (New South Wales) Code: " 438(1) [Debts admissible to proof] In every winding up, subject in the case of insolvent companies to the application in accordance with the provisions of this Code of the Bankruptcy Act 1966, all debts payable on a contingency and all claims against the company (present or future, certain or contingent, ascertained or sounding only in damages) are admissible to proof against the company, a just estimate being made so far as possible of the value of such debts or claims as are subject to any contingency or sound only in damages or for some other reason do not bear a certain value. 438(2) [Application of Bankruptcy Act 1966] Subject to sections 204 and 441, in the winding up of an insolvent company the same rules shall prevail and be observed with regard to the respective rights of secured and unsecured creditors and debts provable and the valuation of annuities and future and contingent liabilities as are in for the time being under the Bankruptcy Act 1966, in relation to the estates of bankrupt persons, and all persons who in any such case would be entitled to prove for and receive dividends out of the property of the company may come in under the winding up and make such claims against the company as they respectively are entitled to by virtue of this section." 8 Reference should also be made to s.439(1): " 439(1) [Computation as at relevant date] The amount of a debt of a company (including a debt that is for or includes interest) is to be computed for the purposes of the winding up as at the relevant date."

In a case such as the present, the "relevant date" is the date of the winding up order. 9 Section 438 causes provisions of the Bankruptcy Act 1966 (Cth) to apply. Section 82(3B) of the Bankruptcy Act, introduced by the Bankruptcy Amended Act 1987 (Cth) and therefore in force at the commencement of this winding up and at all times since, is as follows: "A debt is not provable in a bankruptcy in so far as the debt consists of interest accruing, in respect of a period commencing on or after the date of the bankruptcy, on a debt that is provable in the bankruptcy." 10 This bankruptcy provision applies, via s.438 of the Companies (New South Wales) Code, if Tahore Holdings is properly regarded as an "insolvent" company as referred to in s.438. From this point, I consider the correct analysis to be that set out in my judgment in Re Emilco Pty Ltd (2002) 43 ACSR 536 (a case raising the same issue of "post-liquidation interest" under like provisions of the Corporations Law), with reference to "Emilco" understood as a reference to Tahore Holdings: "But even if Emilco is not "insolvent", proofs in relation to interest bearing debts are limited in the same way as is stated in s.82(3B). Whether the company is solvent or insolvent, the right to prove is a right referable to the state of its indebtedness as at the commencement of the winding up, while any question of entitlement to interest accruing after that commencement falls to be dealt with separately once it becomes clear (assuming that it does) that there is a surplus after satisfaction of provable claims as they existed at commencement and are afterwards admitted. The matter was put thus by Giffard LJ in Re Humber Ironworks and Shipbuilding Company (Warrant Finance Company's case) (1869) LR 4 Ch App 643: 'For these reasons I am of opinion that dividends ought to be paid on the debts as they stand at the date of the winding-up; for when the estate is insolvent this rule distributes the assets in the fairest way; and where the estate is solvent, it works with equal fairness, because, as soon as it is ascertained that there is a surplus, the creditor whose debt carries interest is remitted to his rights under his contract; and, on the other hand, a creditor who has not stipulated for interest does not get it. I may add another reason, that I do not see with what justice interest can be computed in favour of creditors whose debts carry interest, while creditors whose debts do not carry interest are stayed from recovering judgment, and so obtaining a right to interest.' In Re W W Duncan & Co [1905] 1 Ch 307, the crystallisation of claims that occurs at commencement of winding up was the subject of a question posed by Buckley J to himself and then immediately answered: 'Now what do you admit to proof for dividend in the winding-up of a company? The amount of the debt at the commencement of the winding-up. That has nothing whatever to do with the payment of interest accruing due after the winding-up if the company turns out to be solvent. There could not until the fact of solvency was ascertained be a right to claim that interest. The sum for which proof can be made is the amount which is entitled to rank for dividend against the assets to such an extent as they will go.' Whether a creditor whose debt bears interest and who has proved for the principal plus interest to the commencement of the winding up may receive anything on account of interest accruing due after that commencement depends on whether there is a surplus in the hands of the liquidator after all expenses and the like have been met and funds thereafter remaining have been distributed among creditors rateably according to the amounts for which their proofs have been admitted. If a surplus does remain - that is, there has been payment of 100 cents in the dollar in respect of all admitted claims and the liquidator still has funds in hand - the creditor with a claim for post-commencement interest referable to an obligation incurred by the company before commencement is entitled to assert his or her contractual right against the company. This is the position in bankruptcy ( Re Hyman (1930) 3 ABC 61) and also in winding up: Re Fine Industrial Commodities Ltd [1956] Ch 256." 11 These observations apply equally to the present case under the Companies (New South Wales) Code, but with one note of explanation or clarification. Implicit in those observations is the assumption that an obligation to pay interest will be contractual. The same assumption appears in the judgment of Windeyer J in Re Spedley Securities Ltd (2000) 34 ACSR 689 to which Ms Bearup took me when the present application was heard. These references to contractual interest do not mean that interest payable by virtue of some other legally binding obligation stands on some different footing and is not comprehended by the principles stated. It is just that the interest obligation before the court in the particular cases was a contractual obligation. Indeed, as observations of Wootten J in Re A Forsyth & Co Pty Ltd (1975) 1 ACLR 247 show, interest payable by virtue of a contract is but one example of interest within the rule. In Mackenzie v Rees (1941) 65 CLR 1, members of the High Court approached the matter by reference to interest bearing debt generally, without distinction as to the type of obligation requiring the payment of interest: see, in particular, the discussion in the judgment of Dixon J at pages 9 to 14. 12 The source of the obligation to pay interest in the present case is s.95 of the Supreme Court Act 1970. That section declares that, where judgment is given or an order is made for the payment of money, interest shall, unless the court otherwise orders, be payable at the prescribed rate from the date when the judgment or order takes effect on so much of the money as is from time to time unpaid. The principles I have outlined by reference to the extract from Re Emilco Pty Ltd (above) apply to interest required by s.95 to be paid upon a judgment debt in exactly the same way as they apply to interest required by contract to be paid upon a contractual debt. In the particular instance under discussion, Rogers CJCommD did not make any order displacing or modifying the operation of s.95 of the Supreme Court Act. 13 Having reached a point in his administration where he holds a surplus after payment of debts as proved and admitted, Mr Kershaw seeks guidance on the question whether he should, by means referred to in his affidavit, seek claims for post-liquidation interest by creditors whose debts as admitted have already been paid, as well as making a final invitation for the submission of proofs generally. The emergence of a surplus is seen to make appropriate an approach of that kind which would otherwise be superfluous. The steps that Mr Kershaw considers might be taken, including by way of advertising, and the proposed treatment of claims for post-liquidation interest, are set out at paragraphs 36 to 40 of his affidavit sworn on 22 March 2004. Those steps are both prudent and desirable, as a matter of procedure. They also recognise and proceed upon the principles regarding post-liquidation interest that I have referred to above and consider to be correct. Those principles should be applied in relation to all debts upon which interest was continuing to accrue at the time the winding up order was made, regardless of the nature or source of the legal obligation to pay interest. 14 I therefore - (a) make a direction under s.379(3) of the Companies (New South Wales) Code that Scott Bradley Kershaw, the liquidator of Tahore Holdings Pty Limited, is justified in taking the action set out in paragraphs 36 to 40 of his affidavit sworn on 22 March 2004 and filed herein; and (b) order that costs of the application be costs in the winding up of Tahore Holdings Pty Limited. **********

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