Macquarie University v Macquarie University Union Limited

in the matter of macquarie university union limited (in liquidation)

IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 796 OF 2007

INTRODUCTION AND BACKGROUND 1 In each of these two proceedings, a liquidator of a company applies, under s 477(2B) of the Corporations Act 2001 (Cth) (the Act) for the Court's approval to his entering into an agreement on the company's behalf. The proceedings were heard together, the evidence in each being evidence in the other. 2 Section 477(2B) provides: (2B) Except with the approval of the Court, of the committee of inspection or of a resolution of the creditors, a liquidator of a company must not enter into an agreement on the company's behalf (for example, but without limitation, a lease or a charge) if: (a) without limiting paragraph (b), the term of the agreement may end; or (b) obligations of a party to the agreement may, according to the terms of the agreement, be discharged by performance; more than 3 months after the agreement is entered into, even if the term may end, or the obligations may be discharged, within those 3 months. 3 In proceeding NSD 784 of 2007 the Court ordered on 23 May 2007 that the defendant, Macquarie University Union Limited (MUU) be wound up and that Mr Pogroske be its liquidator. In that proceeding, I have delivered two judgments: Macquarie University v Macquarie University Union Limited [2007] FCA 743 and Macquarie University v Macquarie University Union Limited (No 2) [2007] FCA 844. The latter reasons for judgment were also delivered in proceeding NSD 796 of 2007. 4 In proceeding NSD 796 of 2007 the Court ordered on 23 May 2007 that the defendant, Venues at Macquarie Pty Limited (Venues), be wound up and that Mr Pogroske be its liquidator. Previously in that proceeding, Rares J had delivered reasons for making orders on 10 May 2007 appointing Mr Pogroske as provisional liquidator of Venues: Macquarie University Union Limited v Venues at Macquarie Pty Limited [2007] FCA 721. Reasons for Judgment [2007] FCA 844 referred to at [3] above were the reasons for the making of the winding up orders in both proceedings. 5 The background facts in each proceeding appear in the various Reasons for Judgment to which I have referred. 6 MUU is incorporated as a company limited by guarantee. Its objects are set out in cl 3 of its constitution, and may be generally described as complementing and supporting the academic activities of Macquarie University (the University) by providing a range of products, services and facilities. 7 Eligibility for membership of MUU is very wide. There are ten classes of members. One member is the University itself. Ordinary membership is open to persons who are or have been enrolled as students at the University and such other persons or classes of persons as are determined by the Board of Directors of MUU and approved by the Council of the University. 8 Venues is incorporated as a proprietary company limited by shares and is a wholly owned subsidiary of MUU. Its principal activity is that of providing catering and food and beverage services to the students and staff of, and visitors to, the University. 9 MUU was ordered to be wound up on the oppression and just and equitable grounds. It was not suggested that MUU was insolvent. The evidence to which I will refer below demonstrates that it is not. 10 Venues was wound up on the oppression and just and equitable grounds and also on the ground of insolvency. It would not be able to pay its debts without the support of MUU. 11 What is proposed is that the assets of MUU and Venues be transferred to a newly incorporated company limited by guarantee, namely, U@MQ Ltd, which has objects similar to those of MUU. The proposed Deed of Transfer is in evidence. Although it is not certain, some obligations for which the Deed of Transfer provides may, according to the terms of that document, be discharged by performance more than three months after the Deed of Transfer is entered into. It is for this reason that Mr Pogroske makes the present applications for the Court's approval.

FURTHER FACTS 12 On 4 May 2007, the Council of the University removed nine of the directors of MUU pursuant to a power to that end given to it in MUU's constitution. The remaining directors were University Appointed Board Members and the MUU Employee Elected Director. The present directors of MUU are Robert Tongue, who is the second plaintiff in proceeding NSD 784 of 2007, Marilyn Dodkin and Alfonso Maccioni. 13 Since Mr Pogroske's appointment as liquidator of MUU, MUU and Venues have conducted their businesses on their usual trading terms with suppliers, all of whom have had their ordinary trading debts paid as and when due. Mr Pogroske has not terminated the employment of any employees, although some have resigned. 14 Management accounts for MUU as at 30 June 2007 reveal a significant excess of assets over liabilities. Total current assets are shown as $7,031,766 and total non-current assets are shown at $8,204,857, making a total assets figure of $15,236,623. Total liabilities are shown at $1,684,634. There is thus a total equity of $13,551,989. 15 Clause 7 of MUU's constitution provides that if MUU is wound up and there is a surplus available after all liabilities have been discharged, the surplus must not be distributed to MUU's members. The clause provides that the surplus must be given to an organisation approved by the University Council which has similar objects to MUU and similar restrictions on the use of its income to those of MUU. The University Council has approved U@MQ as the organisation to which the surplus is to be given. 16 U@MQ was registered on 20 June 2007 as a company limited by guarantee. Its only member is the University. It has eight directors including Mr Tongue. According to its constitution, which is in evidence, its objects are similar to those of MUU. Like cl 5 of MUU's constitution, cl 4 of U@MQ's constitution provides that the company's income must only be used to pursue its objects and that no part of that income is to be paid or transferred directly or indirectly by way of dividend or bonus to any member. There are other restrictions which are very similar as between the two constitutions.

THE PROPOSED DEED OF TRANSFER 17 The liquidator's opinion is that it is in the interests of members and creditors of both MUU and Venues that their assets be transferred to U@MQ. This will enable both businesses to continue and all creditors to be paid in full. 18 The liquidator gives detailed reasons why the proposed transfers by MUU and Venues to U@MQ are in the interests of members and creditors. I need not recount them. 19 Of importance are provisions in cl 4 of the Deed of Transfer to the effect that U@MQ covenants to pay all liabilities of MUU and Venues, and cl 9.4 that a sum of $2.5 million will be set aside until Mr Pogroske determines that all liabilities of MUU and Venues have been paid, out of which "retention sum" MUU and Venues will be entitled to draw amounts to pay out their creditors. The balance will be paid to U@MQ. 20 The retention sum of $2.5 million is ample to cover the liabilities mentioned, on the figures that are in evidence. 21 There are several provisions in the proposed Deed of Transfer that could involve obligations being discharged by performance more than three months after the Deed of Transfer is executed. For example, U@MQ indemnifies MUU and Venues from and against, and covenants to pay, all liabilities of MUU and Venues (cl 4.1). There are other indemnities by U@MQ which may have to be enforced beyond the three month period. 22 A second illustration is the provision in cl 6.4 of the Deed of Transfer to the effect that U@MQ will be responsible for all employment benefits from the date of completion, whether those employment benefits are derived before or after completion. 23 Thirdly, there is an obligation of confidentiality in cl 8.1 which may have to be enforced outside the three month period. 24 Fourthly, there is an agreement that any child care or children's services operated by MUU pursuant to a licence issued by the Department of Community Services (DOCS) will continue to be operated by MUU on behalf of U@MQ until either the transfer of the relevant licence or licences from MUU to U@MQ, or until U@MQ (or other relevant persons) becomes licensed or authorised by DOCS to operate the child care or children's services and holds the relevant licence or licences. 25 Fifthly, there is the provision for the retention sum of $2.5 million previously mentioned. It is possible that the liquidator will not be in a position to make the determination referred to until beyond the end of the three month period.

CONSIDERATION 26 The Court's approval should be granted. Indeed, an odd situation would arise if it were not granted. Since the surplus in MUU must not be distributed to its members (the identity, let alone the whereabouts, of whom would be most difficult to establish), and may only be transferred to a similar body, the Deed of Transfer would have to be altered so as to omit all obligations not to be performed outside the three month period, in order to render the Court's approval unnecessary. Yet this solution itself may be impracticable, or may at least involve a substantial and unacceptable delay in execution of the document. I accept that it is the liquidator's opinion that entry into the Deed of Transfer is in the best interests of the members and creditors of MUU and Venues.

CONCLUSION 27 For the above reasons, I made the orders on 17 July 2007 granting approval under s 477(2B) of the Act. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren.

Proceedings NSD 784 of 2007 and NSD 796 of 2007 Counsel for the Applicant: Mr S Golledge