Thornleigh
102 On 22 May 1992 the liquidator applied to the Supreme Court for a direction that he was entitled to sell Thornleigh owned by Magic at public auction. On the same day Justice Powell ruled that the liquidator was justified in proceeding with the sale. On 26 May 1992 Thornleigh was sold at public auction for $152,000 to the owner of the adjoining property, Ian Creak. Mr Sourian applied for an injunction to restrain the liquidator from dealing with the sale proceeds explaining to the Court that the adjoining owner had made an earlier offer of $250,000 for the property with the intention of amalgamating the two properties thereby increasing their value. The application was rejected by Justice Waddell on 16 July 1992 on the basis that in proceeding with the sale the liquidator had followed the directions of Justice Powell.
103 Considerable evidence was presented to the Court on this issue. Viewing the evidence in the most favourable light, a number of facts affected the ultimate sale of the property. It was vacant commercial land on Pennant Hills Road with the only possibility of vehicular access being from that busy thoroughfare, a development the local Council was apparently unlikely to approve. In fact in 1991 the Council recommended in a rejected development application for the property that the land be developed in conjunction with the adjoining corner property which had vehicular access on a side street. The property was thus thought to be worth a considerable amount to the neighbour who had according to Mr Sourian planned to amalgamate it and four other properties to make a showroom dealership. In August 1990 a valuation of the adjoining property was produced on behalf of Mr Sourian which stated that the amalgamation of the two properties would enhance the value of both properties.
104 In August 1990, through its solicitors at the time, Lees and Givney, Magic made an offer to Mr Creak, to purchase that block. In a letter dated 14 August 1990, Mr Creak replied to this offer with a counter offer of $250,000 for Thornleigh and mentioned the previous offers of lesser value he had made for the property which had apparently gone unanswered by Magic. Magic then made a counter offer of $340,000. Mr Sourian alleges that soon after, towards the end of August 1990, Mr Creak made an offer of $350,000 with $70,000 of it to be in cash and not recorded on the contract. It became obvious during the hearing that Magic rejected this offer not only because they hoped that Mr Creak would make an even larger offer but also because Mr Magarditch refused to have anything to do with the cash payment. It would thus seem that this offer ceased to exist. Between August 1990 and June 1991 when Magic went into liquidation, it would appear that Mr Creak became preoccupied with other business matters and it is not clear whether in June 1991 any offer or even any interest from him was still live.
105 On 17 April 1991 real estate agents Colin Dennis and Associates wrote to Mr Sourian with an offer for Thornleigh. It would appear that their clients, identified in the letter as Crest Constructions, had made a previous offer of $210,000 which Mr Sourian had rejected. The letter contained an increased offer of $225,000. A letter dated 2 August from the same real estate agent advised Mr Magarditch that Crest Constructions were offering $250,000 for the property. On 19 August 1991 this offer was raised to $275,000 "cash in 30 days".
106 In a letter dated 21 August 1991, Mr Sourian wrote a two page letter to the liquidator on various issues relating to the liquidation. The letter stated that Thornleigh was "readily saleable" and that Mr Sourian "would not anticipate any difficulty or delay selling it". Mr Sourian proposed the sale of Thornleigh as a way of raising funds to pay the admitted bank debt and secure the removal of Magic from liquidation. The offer of $275,000 received by Mr Sourian just two days earlier was not mentioned, nor were the offers that had been made by Mr Creak.
107 On 4 October 1991 Magic's solicitor at the time, Jennifer E. Darin, wrote to the liquidator advising of the offer of $275,000 from Colin Dennis & Associates, attaching a copy of the offer. A reply from the liquidator dated 15 October 1991 indicated that it was only through her letter of the 4 October that the liquidator had become aware of the offer. In an affidavit in the bankruptcy proceedings, No. NP 192 of 1996 dated 21 June 1996, Mr Sourian stated that also in response to the letter of 4 October, the liquidator sent out a circular to Magic's customers requesting information of any other offers or expressions of interest received by Mr Magarditch and Mr Sourian relating to the sale of Thornleigh. Mr Sourian then stated in his affidavit that he (sic):
telephoned the liquidator and informed him that approximately in August 1990 the neighbour Mr Ian Creak had offered to purchase the property for ($350,000.00) which offer included the sum of ($70,000) in cash. The said amount of ($70,000) in cash was not to be recorded on the sale contract. My father and I rejected this offer which had been originally made by Mr Creak at a meeting at out Gladesville premises at 136 Victoria Rd, Gladesville...
Mr Creak had made prior offers of ($175,000.00), ($205,000.00) and ($250,000.00) prior to making this fourth ($4th) final offer of ($350,000.00).
108 At a creditors' meeting on 13 December, Mr Sourian and Mr Cardwell, Chairman of the liquidator's firm, had a discussion on the valuation of Thornleigh obtained by the liquidator from a registered valuer and on the offer Mr Sourian had received for approximately $280,000 which I believe refers to the offer from Colin Dennis and Associates of $275,000. Mr Cardwell stated that "the property had been appraised at $150,000 and that he would stand by that valuation" in the sense that that was the value that was to be included in the report on the financial position of Magic. He indicated that the liquidator would not acknowledge a higher valuation which was not supported by historical information until the offer had progressed to a stage where contracts were exchanged and completed. He stated that "if there was an offer for $150,000 and I had a valuation for $150,000, I would have to sell it for that".
109 It is apparent that throughout 1991 Mr Sourian and Mr Magarditch were attempting to organise finance with a company called Morland Finance to pay out the admitted debt and bring Magic out of liquidation. It was envisaged that Thornleigh could be used as security to obtain such finance, but essential to the plan was the preservation of Magic's assets. As indicated in a letter from Balmain Partners, the mortgage brokers for Morland, this offer of finance lapsed on 1 December 1991 but was capable of being renewed on condition that the dispute with the bank over Magic's debt was settled by its payment or at least by agreement on the amount owing. The letter of 21 August 1991 indicated that the sale of Thornleigh was seen as an option, but was clearly not the preferred course of action.
110 In a file note for a meeting at the liquidator's office between Mr Butler of Jennifer E. Darin's office, Mr Cardwell, Mr Sourian and Mr Magarditch on 22 August 1991, Mr Cardwell is reported to have stated that he believed that Thornleigh was probably worth about $280,000. This statement was made in the same month that the offer of $275,000 was made for the property. The liquidator did not become aware of this offer until October 1991. Mr Sourian made clear during the meeting that he did not wish Magic's properties to be sold.
111 Notes from a meeting on 1 November 1991 in the Chambers of Mr Pembroke of counsel to discuss the defence of the bank's possession proceedings, recorded that Mr Sourian stated that he wished the liquidator to "sit back" and let the common law proceedings "take their course". This was interpreted to mean that the liquidator should maintain Magic's defence of the proceedings and not attempt to realise Magic's assets.
112 On 22 November 1991 the liquidator explained in his report to creditors that since his appointment he had continued to carry on the business at 138 Victoria Rd, but that trading had been minimal and that he was having difficulty meeting the day-to-day running costs of the company. Nevertheless, he had continued to trade because he believed that the contention or unresolved issues, both in the courts and with the directors of Magic, would be resolved, re-financing would be obtained and an application would be made for the setting aside of the winding up order. However, Mr Sourian failed to put forward any concrete proposals for re-financing. A statement in a letter from Hunt and Hunt to Jennifer E. Darin typifies the liquidator's attempts to get details of the re-financing proposals:
Please identify the written loan approval to which you refer, and how is it said that our client is aware of that approval. Your client has suggested that he has a facility available, but no details have been provided of it or any specific offer put by you client in the nature suggested by you.
113 As late as 20 December 1991 it was the wish of the applicants that the business at 138 Victoria Rd remain open and that they remain employed in the business.
114 In the correspondence throughout December 1991, there was no mention of the fact that the re-financing option would probably be frustrated by the placement of the caveat on Willoughby. Yet without access to an unencumbered Willoughby and a resolution of at least the quantum of the debt to the bank, Magic's hopes of re-financing remained essentially pipedreams, a fact that the applicants were unwilling to accept. It was their insistence that their plan was feasible which kept the liquidator from selling Thornleigh sooner.
115 A file note of a meeting on 10 January 1992 at the liquidator's office established that in early 1992 the liquidator finally decided to begin the process of realising Magic's assets, including Thornleigh which was to be sold at auction or by private treaty. In a letter dated 13 January to Jennifer E. Darin, the liquidator advised that partially as a result of the closure of the business at 138 Victoria Rd, he was proceeding with the realisation of Magic's assets and asked Mr Magarditch and Mr Sourian to forward details of potential purchasers of Thornleigh.
116 On 24 January 1992, Charles Reid of Raine & Horne Commercial wrote to the liquidator in response to his invitation to make a submission for the sale of Thornleigh. He stated that Raine and Horne had been appointed selling agent by Mr Sourian for a period following December 1988. The price of the property was "fluid" and that when an offer of $350,000 was received at some point prior to July 1991, the vendor increased the asking price to $400,000. In July 1991 the vendor was asking $350,000. The suggested marketing strategy recommended targeting the two adjoining owners using a selective tender system as the potential buyers had previously advised Raine & Horne that they would be "interested to purchase the property subject to the asking price being realistic". On the issue of "Likely Sale Price", Mr Reid stated:
In the normal course we would envisage the property's selling price being around say $180,000 - $220,000. The adjoining owner influence might achieve a better price up to say $240,000 - $250,000, but in a distressed sale situation we would envisage that the reverse is likely to occur with the price stopping at around $200,000.
117 On 4 February 1992 Mr Creak wrote to Mr Reid with an offer of $180,000 for the property. This offer was apparently enclosed in a letter by Mr Reid to the liquidators dated 5 February 1992. On 10 February a letter from the liquidator to Mr Reid acknowledged receipt of notification of the offer from Mr Creak and referred to Mr Reid's permission to sell the property. The letter states in part:
… we advise that the Official Liquidator has selected an alternative real estate agent to manage the sale.
...
… we advise that the liquidator neither accepts the offer or wishes to negotiate further at this stage. Should you deem it appropriate, kindly introduce this interested party to Mr Philip Haberle of Raine & Horne, Thornleigh.
118 Philip Haberle was the agent engaged by the liquidator to sell Thornleigh. As earlier noted, the sale was stayed on 17 February as part of proceedings by Mr Sourian and Mr Magarditch to restrain the sale of Magic's assets. The stay ended on 3 April 1992 when Justice Hodgson dismissed the appeal against the winding up order.
119 On 19 February 1992, Mr Reid communicated to the liquidator an offer by BP Australia of $200,000 for the Thornleigh property. The letter stated:
We understand that the site has been withdrawn from sale subsequent to legal action by the vendor - hence our offer to you direct.
120 A letter dated 8 May 1992 from Jennifer E. Darin to Hunt and Hunt claimed that Mr Sourian had only that day become aware of the proposed auction of Thornleigh on 12 May. The letter continued:
My Clients are somewhat concerned to note that no prior notice was given to them of the proposed auction sale and that the auction sale is being conducted notwithstanding the position of the Company and the Court proceedings.
121 In light of the liquidator's rejection of a substantial portion of the debt claimed by the bank and the lodging of an appeal against the decision of Justice Hodgson, the letter requested that Hunt and Hunt obtain:
urgent instructions from your Client with a view to delaying the auction sale until after at least the hearings of that appeal.
122 The reply from Hunt and Hunt dated 11 May 1992 indicated that this letter was how they became aware of the appeal.
123 Then in a letter dated 15 May 1992, Jennifer E. Darin advised Hunt and Hunt that she had ceased to act for Magic, Mr Magarditch and Mr Sourian. Their new lawyers Caruana Kay & Barry wrote in a letter to the liquidator of 19 May 1992:
I am instructed that there is no need to sell the Thornleigh property in order to arrange payment to the balance of the unsecured creditors. In those circumstances, it would be inappropriate to proceed with the sale.
There is also the rather more serious question of the liquidator's conduct in this matter to be considered. My clients will be moving the Court for an enquiry into the liquidator's conduct and seeking an order that you be removed. In those circumstances the liquidations should cease until the Court's enquiry is complete.
My clients will hold you personally responsible for any damages occasioned by your peremptory action.
124 It has taken 6 more years before anything more was done about the proposed inquiry. But it was this letter that prompted the liquidator to seek directions from the Court on 22 May 1992 as to whether he should proceed with the Thornleigh sale. It is clear from Justice Powell's reasoning on that day that all the information presented to the court by counsel representing Mr Sourian and Mr Magarditch pertained to their continued opposition to the winding up of Magic and their outright opposition to the sale. They did not contest the method of sale chosen by the liquidator's real estate agent nor did they present any evidence to suggest that the chosen method of sale was likely to return a price well below that which could have been achieved. There was no mention that an offer of $275,000 had been received and that the person who had made this offer was not intending to attend the auction. Nor was there any evidence before Justice Powell suggesting that there was a dispute about the valuation of the property. His Honour interpreted Mr Sourian's previous attempts to halt the sale as a "series of manoeuvres, made at the last moment in an attempt to stultify the efforts" of the liquidator to carry out his duties as an officer of the Court. His Honour decided the matter on the basis that Magic had been held to be insolvent by the Court; the efforts of the directors to obtain re-financing would not, he believed, remove Magic from insolvency; and Mr Sourian and Mr Magarditch had not applied for a further stay to prevent the sale of assets despite the filing of an appeal against Justice Hodgson's decision.
125 As the dispute over the value of the property was known by both sides, it is disturbing that neither side brought it to the attention of Justice Powell with the consequence that until the present hearing, the dispute has not been addressed in any proceedings of which I have been made aware. If the applicants believed that the liquidator was wrong in choosing an auction to sell Thornleigh, and that a much better price was achievable through some other method of sale, the hearing before Justice Powell in May 1992, or the previous proceeding before Justice Cohen in February 1992, were the obvious times to raise these issues. Those proceedings may have taken quite different courses if that had been done.
126 A file note by Peter Yates of the liquidator's firm dated 25 May 1992 recorded the details of a meeting or phone conversation with Raine & Horne's Philip Haberle revealing that:
(a) there had been 12 enquiries regarding the property and 12 people had taken a copy of the contract;