Manly Warringah Cabs (Trading) Co-operative Society Limited v Sydney Taxis Pty Ltd, in the matter of Sydney Taxis Pty Ltd

Federal Court of Australia|2020-08-19|Before: Gleeson J

Michael Jones of Jones Partners, a registered liquidator, be appointed as liquidator of the defendant, provisionally with the powers conferred on him by the Corporations Act 2001 (Cth) and the Federal Court (Corporations Rules) 2000 (Cth).
The matter be listed for hearing of the application for final orders on Wednesday 9 September 2020 at 10.15 am. THE COURT NOTES THAT:
The Court has received the consent of Michael Jones to be appointed by the Court to act as provisional liquidator dated 19 August 2020. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

GLEESON J: 1 The plaintiff Manly Warringah Cabs (Trading) Co-operative Society (Manly Cabs) has commenced proceedings for an order that the defendant Sydney Taxis Pty Ltd (Sydney Taxis) be wound up in insolvency or on the just and equitable ground. 2 Sydney Taxis is a company registered under the Corporations Act 2001 (Cth) (Act). Manly Cabs and RSL Ex-Servicemen's Cab & Co-operative Members Limited (RSL Cabs) each own 50% of the issued shares in Sydney Taxis and each has appointed two directors of Sydney Taxis. The relationship between Sydney Taxis, Manly Cabs and RSL Cabs is governed by a shareholders agreement made in about December 2008. 3 In summary, Sydney Taxis operates a radio room and call centre for both Manly Cabs and RSL Cabs. Manly Cabs is substantially dependent for its ongoing business on the services provided by Sydney Taxis. Without those services, Manly Cabs would have no radio work, no duress alarm system (required by State legislation) and no booking system. 4 Pending the hearing of the winding up application, Manly Cabs sought the appointment of a provisional liquidator to Sydney Taxis pursuant to s 472(2) of the Act to facilitate the uninterrupted delivery of services currently provided by Sydney Taxis and essential to the continuing operation of the networks operated by Manly Cabs and RSL Cabs. 5 RSL appeared on the hearing of the application to appoint a provisional liquidator pursuant to leave granted under r 2.13 of the Federal Court (Corporations) Rules 2000. RSL did not oppose the appointment of a provisional liquidator but submitted that the Court should satisfy itself that the discretion conferred by s 472(2) ought to be exercised. RSL proposed a different person be appointed as provisional liquidator. That proposal led Many Cabs' proposed appointment to consent to the appointment at lower charge out rates. 6 After hearing submissions, I made an order appointing Michael Jones of Jones Partners, a registered liquidator, as provisional liquidator of Sydney Taxis. 7 These are my reasons for making that order.

Evidence 8 In support of the application, Manly Cabs relies on the following evidence: (1) affidavit of Susan Inskip sworn 9 July 2020. Ms Inskip has been a member of the board of Manly Cabs since 1 July 2019 and a director of Sydney Taxis since 24 October 2019. (2) affidavit of Shane Christopher Martin sworn 12 August 2020; (3) affidavit of Karen McLean, solicitor sworn 10 July 2020; (4) affidavit of Lisa Marie Moyes sworn 20 July 2020; (5) affidavit of Lisa Marie Moyes sworn 11 August 2020; and (6) affidavit of Lisa Marie Moyes sworn 12 August 2020.

Manly Cabs grounds for appointment of provisional liquidator 9 The matters on which Manly Cabs relied to support the appointment of the provisional liquidator are as follows: (1) Sydney Taxis' financial position is parlous, an injection of funds is urgently required which will not be forthcoming; (2) Sydney Taxis does not have in place accounting systems which are able to provide accurate up to date information as to the company's financial position; (3) the management of Sydney Taxis is not being conducted in accordance with the shareholders agreement; (4) for those reasons Sydney Taxis' continued operation is uncertain, Manly Cabs does not wish to rely on Sydney Taxis to provide it with services yet the company holds data which is crucial to the operations of Manly Cabs and controls the phone numbers which belong to Manly Cabs; and (5) an independent approach to the winding up of Sydney Taxis is in the interests of the contributories, their members, employees and clients.

Legal framework 10 Section 459A of the Act provides that, on an application under section 459P, the Court may order that an insolvent company be wound up in insolvency. 11 By s 459P(1), a contributory may apply to the Court for a company to be wound up in insolvency. Manly Cabs is a contributory in relation to Sydney Taxis as it is a holder of fully paid shares in Sydney Taxis. By s 459P(2), such an application by a contributory may only be made with the Court's leave. By s 459P(3), the Court may give leave if satisfied that there is a prima facie case that the company is insolvent, but not otherwise. 12 By s 461(1)(k), the Court may order the winding up of a company if the Court is of opinion that it is just and equitable that the company be wound up. 13 Section 462 provides relevantly that a contributory may apply for an order to wind up a company on a ground provided for by s 461. 14 Section 472 of the Act provides relevantly: (2) The Court may appoint a registered liquidator provisionally at any time after the filing of a winding up application and before the making of a winding up order or, if there is an appeal against a winding up order, before a decision in the appeal is made. (3) A liquidator appointed provisionally has or may exercise such functions and powers: (a) as are conferred on him or her by this Act or by rules of the Court that appointed him or her; or (b) as the Court specifies in the order appointing him or her. (4) A liquidator of a company appointed provisionally also has: (a) power to carry on the company's business; and (b) the powers that a liquidator of the company would have under paragraph 477(1)(d), subsection 477(2) (except paragraph 477(2)(m)) and subsection 477(3) if the company were being wound up in insolvency or by the Court. (5) Subsections 477(2A) and (2B) apply in relation to a company's provisional liquidator, with such modifications (if any) as the circumstances require, as if he or she were a liquidator appointed for the purposes of a winding up in insolvency or by the Court.

Grounds for appointment of provisional liquidator 15 In ASIC v AGM Markets Pty Ltd [2018] FCA 1119 (AGM Markets), Beach J set out the following principles relevant to the appointment of a provisional liquidator at [78] to [87]: [78] Section 472(2) of the Corporations Act empowers me to appoint a provisional liquidator at any time after the filing of a winding up application and before the making of a winding up order. [79] Now although I have a broad discretion whether to appoint a provisional liquidator, nevertheless an applicant for the appointment of a provisional liquidator is required to establish two things. [80] First, the applicant must show that it has reasonable prospects of obtaining a winding up order. As a consequence, there is a significant overlap between the matters relevant to determining whether to wind up a company on the just and equitable ground, and the matters that weigh in favour of the exercise of my discretion to appoint a provisional liquidator. [81] Second, an applicant for the appointment of a provisional liquidator must show that there is some good reason for intervention prior to the final hearing of the winding up application, for example that the appointment is needed in the public interest or to preserve the status quo or to protect the company's assets and affairs. [82] Now it has often been said that the appointment of a provisional liquidator pending the determination of a winding up application is a drastic intrusion into the affairs of a company and should not be ordered if other measures would be adequate to preserve the status quo. Now such considerations are important, but they do not of themselves necessarily limit my jurisdiction or exercise of power to appoint a provisional liquidator. [83] Factors relevant to the exercise of my discretion to appoint a provisional liquidator include: (a) whether the affairs of the company have been conducted casually without due regard being given to the applicable legal requirements so as to cause me to have no or little confidence that the affairs of the company are being carried out properly; (b) whether the assets of the company will be dissipated in the interim period between the filing of the application to wind up and the winding up order being made; (c) whether in the public interest there is a need for an examination of the state of the accounts of the company; and (d) whether, if the appointment was not made, there was a strong possibility that there would be further acts, omissions or events which would be detrimental to creditors or shareholders. [84] But unless an applicant can demonstrate that there is a need for interim control of the company pending the winding up of the company, no appointment will be made. It is not by itself enough, for example, that the company has not traded for some time. It is also not enough by itself that a provisional liquidator might be able to undertake investigations which might be fruitful (Allstate Explorations NL v Batepro Australia Pty Ltd [2004] NSWSC 261 at [37] per Austin J). [85] But it may be appropriate to appoint a provisional liquidator where the affairs of the company have been carried on casually and without due regard to legal requirements so as to leave me with no confidence that the company's affairs would be properly conducted with due regard for the interests of creditors and shareholders. [86] Further and generally speaking, it is also necessary to consider the degree of urgency and the balance of convenience. [87] Further, where the company opposes the application for the appointment of a provisional liquidator, the onus on an applicant may not be as heavy as it would be otherwise. If the applicant's affidavits raise matters to which one would expect there to be some answer and there is no answer provided, then that may raise a suspicion that it may well be in the public interest to appoint a provisional liquidator.

Winding up on just and equitable ground 16 In AGM Markets at [73], Beach J noted that there are three factors of central significance to the exercise of the power to wind up a company on the just and equitable ground, that is, pursuant to s 461(1)(k) of the Act, namely: (a) First, is there a justifiable lack of confidence in the conduct and management of the relevant company or its affairs? (b) Second, is there a real risk to the public or the public interest that warrants protection by such an order and the consequences flowing from liquidation? For example, do investors need to be protected? Further, is it necessary to prevent repeated or threatened breaches of the law? (c) Third, is the relevant company solvent? A court may be reluctant to wind up a solvent company.

Winding up in insolvency 17 Again, Beach J observed relevantly at [76]: … A person is solvent if the person is able to pay all the person's debts as and when they become due and payable (s 95A(1)). A person who is not solvent is insolvent (s 95A(2)). A cash flow test is adopted (Noxequin Pty Ltd v Deputy Commissioner of Taxation [2007] NSWSC 87 at [14] per Barrett J). Contingent and prospective liabilities may be taken into account (s 459D). Further, a court will have regard to commercial realities.

Consideration 18 The business of Sydney Taxis has been affected by restrictions imposed on consumers of taxi services by the COVID-19 pandemic. RSL Cabs accepted that Sydney Taxis is likely to be insolvent. Ms Inskip holds the opinion that Sydney Taxis is insolvent and set out information concerning Sydney Taxis' financial affairs that tends to support her opinion. On that evidence, I accepted that Manly Cabs has reasonable prospects of obtaining a winding up order. 19 I listed Manly Cabs' application for a winding up order in three weeks' time on 9 September 2020 which is a date convenient to RSL Cabs, in the event that they will oppose the application. 20 Further, on the currently available evidence, it appears that there may have been a breakdown in the relationship between the two shareholders of Sydney Taxis, and in the relationship between the directors of Sydney Taxis. 21 At least Manly Cabs is substantially dependent upon the continued operation of Sydney Taxis for its own continuing operations. 22 I was not persuaded that there is presently a significant risk that Sydney Taxis will cease operations abruptly, as Manly Cabs suggested, but I did accept that there is a risk of disruption arising out of the evidence of a significant outstanding debt to Telstra, which is a key supplier of services to Sydney Taxis. 23 While that risk is small, if it eventuated the consequences would be significant for the stakeholders who include taxi drivers and taxi users. On the evidence, Manly Cabs would be unable to comply with regulatory requirements, including the provision of functioning duress alarms and vehicle tracking systems.

conclusion 24 In the light of the risk of an abrupt cessation to the operations of Sydney Taxis, and the lack of opposition to the appointment of a provisional liquidator by RSL Cabs, I concluded that it was appropriate to make the order sought because Ms Inskip's evidence raised significant concerns that the affairs of Sydney Taxis may have been conducted casually, without adequate and current financial information that would enable the company to determine whether it is insolvent, and in substantial breach of the shareholders agreement. 25 I accepted Mr Spencer's submission that, where there were two nominees for the appointment to provisional liquidator, it was appropriate to select Manly Cabs' nominee: In the matter of South Pelagic Holdings (Receivers and Managers Appointed) (Administrators Appointed) (ACN 097 802 572) [2020] FCA 187 at [60] (Farrell J). I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Gleeson.

Corporations Act 2001(Cth)ss 459A, 459P, 461, 462, 472

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