McCann, in the matter of Walton Construction (Qld) Pty Ltd (In Liq) v QHT Investments Pty Ltd

3 On 20 September 2013, that is, three days later, a further agreement was entered into called the 'Asset Sale Agreement'. The parties to that were relevantly Walton Construction and Lewton. It is not necessary to set out the detail of that agreement. It suffices to say for present purposes that its effect in broad terms was to transfer the burden of the debts which had previously been owed by Walton Construction to Lewton. The broad effect of the deed of assignment and the asset sale agreement was, if this be possible, to transfer the relationship of debtor and creditor which had previously existed between Walton Construction and Walton to QHT and Lewton. 4 Under clause 4 of the deed of assignment, the consideration was to be paid within three days of the completion date. The completion date was defined in clause 13.1 (set out above) as being the earlier of the date upon which the assignee paid the consideration to the stakeholder or a date that was 10 business days after the date of the document, in this case, 18 September. Evidence was given before me by Mr Stretch, the solicitor for the respondent, as to the process of payment. 5 His evidence was that Mr Franklin, one of the joint administrators of Walton at the time, sent an email to Mr Spry on behalf of QHT in which he called for payment of the fund which had been held in his firm's trust account. The funds in question landed in Mr Stretch's trust account on 20 September 2013, that is to say, $30,000 was paid into the account on that day. Mr Stretch was, relevantly for the purposes of the agreement, the stakeholder. The consequence of that is that the completion date was 27 September. Accordingly, clause 4.1 required the consideration to be paid within three days of 27 September. 6 Mr Stretch's evidence that a request that was made of Mr Spry resulted in the sum of $30,000 being paid out by him on 11 October. The significance of the 11 October date is that clause 4.2 imposed a condition subsequent upon the payment of the consideration. Although clause 4.1 required the consideration to be paid within three days, the effect of clause 4.2 is that this did not need to occur until such time as the condition subsequent was fulfilled. The condition subsequent was the satisfaction of the assignee, in terms of item 2, that the assignee had received a release from all persons having a perfected security interest over the assigned property. 7 Because it is known that on 11 October the money was, in fact, released, the submission was made to me that it followed that the condition subsequent had either been fulfilled or had been waived by the assignee. An alternative proposition which was advanced by Mr Chesterman on behalf of the applicants was that, in fact, there was no effective security interest over the assigned property within the meaning of item 2 of the schedule. There is no evidence before me at all about the status or otherwise of any perfected security interest. It is difficult to be clear in my mind whether the condition subsequent had, indeed, been fulfilled or waived or simply whether it was never applicable because there was no such security interest. 8 The point probably does not matter too much because I am prepared to accept that the effect of the deed of assignment was that the debts were assigned. The debate about the status or otherwise of the condition subsequent relates to the issue of when the agreement should be taken to have been executed. At least for the purposes of an application such as the present, I am satisfied that there is a good arguable case that the debts were assigned under the deed of assignment pursuant to clause 3 on the date of the deed, that is, 18 September 2013. 9 Mr Wise advanced two arguments why nevertheless one should draw the conclusion that the applicants did not have a good arguable case that the deed of assignment had involved a voidable transaction. I should interpolate that after the asset sale agreement was executed, administrators were appointed to the applicant on 3 October. And on 8 November 2013, the administrators became liquidators. On 29 July 2014, they were replaced by new liquidators. I mention that only in passing because ordinarily it might be necessary to explain how it is that there was an arguable case for a voidable preference. 10 But Mr Wise very properly, if I may say, accepted that subject to the argument with which I am shortly to deal, and subject also to his other points about undertakings as to damages and risk of dissipation, there was on the insolvency aspects of the matter, if I may put it that way, a relevantly arguable case. The claim advanced by Mr Wise on behalf of the respondent turned on the provisions of section 451C of the Corporations Act 2001 (Cth). Section 451C provides: 451C Effect of things done during administration of company A payment made, transaction entered into, or any other act or thing done, in good faith, by, or with the consent of, the administrator of a company under administration: (a) is valid and effectual for the purposes of this Act; and (b) is not liable to be set aside in a winding up of the company. 11 His argument was that the administrators had requested and had received the $30,000 as the consideration under the deed of assignment, and had done so on 10 October. Consequently, s 451C had the effect of rendering that transaction unable to be attacked. Consequently, he submitted, it could not be the case that the court would strike down part of the deed of assignment but leave another part of it intact. The setting aside of the deed would have to be an all or nothing circumstance. That proposition is certainly a respectable one. It would be certainly unusual for a court to strike down one part of a deed leaving another part in place. 12 This argument is even stronger when one brings to account the fact that different parts of a deed have different monetary effects. One can imagine a circumstance in which perhaps a clause of a deed was severed which had a minor effect, but to strike out one part of a commercial transaction and leave the balance of it in would be an unusual thing to do. Mr Chesterman submitted that I ought not to be too troubled by that because he was entitled to obtain relief not only to set aside the deed if necessary, but also for compensation under s 588FF(1)(c). Section 588FF(1) provides: 588FF Courts may make orders about voidable transactions (1) Where, on the application of a company's liquidator, a court is satisfied that a transaction of the company is voidable because of section 588FE, the court may make one or more of the following orders: (a) an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction; (b) an order directing a person to transfer to the company property that the company has transferred under the transaction; (c) an order requiring a person to pay to the company an amount that, in the court's opinion, fairly represents some or all of the benefits that the person has received because of the transaction; (d) an order requiring a person to transfer to the company property that, in the court's opinion, fairly represents the application of either or both of the following: (i) money that the company has paid under the transaction; (ii) proceeds of property that the company has transferred under the transaction; (e) an order releasing or discharging, wholly or partly, a debt incurred, or a security or guarantee given, by the company under or in connection with the transaction; (f) if the transaction is an unfair loan and such a debt, security or guarantee has been assigned--an order directing a person to indemnify the company in respect of some or all of its liability to the assignee; (g) an order providing for the extent to which, and the terms on which, a debt that arose under, or was released or discharged to any extent by or under, the transaction may be proved in a winding up of the company; (h) an order declaring an agreement constituting, forming part of, or relating to, the transaction, or specified provisions of such an agreement, to have been void at and after the time when the agreement was made, or at and after a specified later time; (i) an order varying such an agreement as specified in the order and, if the Court thinks fit, declaring the agreement to have had effect, as so varied, at and after the time when the agreement was made, or at and after a specified later time; (j) an order declaring such an agreement, or specified provisions of such an agreement, to be unenforceable. 13 It will be seen that the relief of declaring an agreement to be unenforceable appears in subsection (j). It also appears that the satisfaction of the court that the transaction in question is voidable is a jurisdictional prerequisite to making any of the orders in subparagraphs (a) through to (j). Subparagraph (a) empowers the court to order a party to pay an amount of money. Mr Chesterman's submission was that even if it was true that the effect of s 451C had been effectively to render the deed unable to be set aside, nevertheless, his clients were entitled to pursue a compensation claim under subparagraph (a). 14 In response, Mr Wise submitted that that might well be possible as a matter of legal theory, but as a matter of practical reality that would not occur. There may be some force in that proposition. Nevertheless, the fact remains that the relief claimed by the applicants in this case includes not only a declaration that the deed is void but also, consistent with subparagraph (a), an order that the respondent pay to the applicants all the sums received by it relating to the debt subject to the deed of assignment. I do not think that the seeking of that declaration is a necessity before a right to compensation can arise under s 588FF(1)(a). This is apparent, really, from the textual structure of s 588FF(1). If the making of a declaration were thought to be a prerequisite to the ordering of any of the relief set out in s 588FF(1), then it is unusual that this is not specified in the section. I think the better view is that s 588FF does not operate that way, but it is not necessary for me to reach a firm view about that matter. I am certainly satisfied that for the purposes of an application such as the present Mr Chesterman's argument is sufficient arguable. Accordingly, I do not accept on this occasion that s 451C can operate in the manner foreshadowed in Mr Wise's first argument. 15 Mr Wise had a second argument, and that was that the events which had led the administrators to receive the $30,000 had acted as effectively a ratification by them of the deed of assignment. This mattered because on the construction of s 451C for which he contended, if the deed of assignment were ratified by the administrators, then the immunity from attack conferred by that provision would then fall upon it. There is no doubt in my mind that an administrator may, of course, ratify an earlier agreement. It is less obvious that if she or he does so that the protection conferred by s 451C will operate retrospectively. 16 I was not taken to any authority which indicated that anyone has ever considered the question of whether s 451C can operate retrospectively to protect transactions in that fashion by means of ratification. It seems to me that although the argument is not necessarily wrong, for the purposes of the present application, I do not think it reduces the applicants' position from having a good arguable case. So I therefore conclude that despite Mr Wise's submissions about the operation of s 451C, the applicants have established a good arguable case within the meaning of rules 7.32 and 7.35(1)(b) of the Federal Court Rules 2011 (Cth). 17 Turning to the question of the undertaking as to damages, in the papers provided to me at the outset of the hearing, the applicants indicated that they sought the interlocutory injunction on the basis of the following undertaking: On the Applicants' undertaking to pay damages occasioned by the injunction, limited to an amount not exceeding the Applicants' indemnification out of the assets of the company in liquidation… 18 Mr Wise submitted that that undertaking was insufficient and if that were the undertaking which were proffered the court would decline to grant relief. There may be some relatively obscure situations in which the court may not require an undertaking as to damages or may accept an undertaking as to something less than the full loss suffered by another party. There is a debate, for example, in relation to the position of regulators as to whether every regulator needs to give an undertaking as to damages - see the recent decision of Beech J in Australian Competition and Consumer Commission v Get Qualified Australia Pty Ltd [2016] FCA 976. 19 More pertinently for present proceedings, there is perhaps a little bit of support for the proposition that on some occasions it may be possible to dispense with an undertaking as to damages. Probably the high watermark for that proposition is in a judgment of Einstein J in De Boer v Williams [2004] NSWSC 351. In that case, his Honour was concerned with a Mareva injunction for which at least two of the plaintiffs had not proffered an undertaking. His Honour undertook his usual thorough analysis of the authorities and, having referred to the decision of Young J in Southern Tableland Insurance Brokers Proprietary Limited (in liquidation) v Schomberg (1986) 11 ACLR 337, to which I will return, his Honour then said at paragraph 23: 23 Young J accepted that there had been examples of proceedings where interlocutory relief had been ordered where no undertaking had been given. And as Austin J pointed out in New Cap Reinsurance v Chase Manhattan (No 2) [1999] NSWSC 808, one example is where the plaintiff is impecunious and supported by legal aid and seeks a Mareva injunction order as in Allen v Jambo Holdings Ltd [1980] 1 WLR 1252 and Szentessy v Woo Ran (Australia) Pty Ltd (1985) 65 ACTR 98. Another example as Austin J points out, is provided by cases where interlocutory injunctions have been granted at the suit of a liquidator without any requirement that the liquidator give a personal undertaking as to damages. 20 And in particular point is the reference in the last sentence to the examples Austin J is said to have pointed to of cases where interlocutory injunctions have been granted at the suit of a liquidator without any requirement that the liquidator give a personal undertaking as to damages. I will come back to that case in a moment. In the meantime, it is useful to note that there is very little support for the proposition that a liquidator might be relieved of an obligation to proffer an undertaking as to damages to be found in Young J's decision in a Southern Tableland. Indeed, it seems to me that that case is pretty clear authority for the proposition that perhaps absent very obscure circumstances an undertaking will almost always be required. 21 One of the judgments referred to by Einstein J is Austin J's decision in New Cap Reinsurance v Chase Manhattan (No. 2) [1999] NSWSC 808. Resort to that decision is useful because these are the examples which Einstein J thought Austin J had uncovered where liquidators had not been required to give an undertaking as to damages. But the critical part of the judgment at paragraph 27 is in the following terms: Another example more closely analogous to the present circumstances is provided by cases where interlocutory injunctions have been granted at the suit of a liquidator without any requirement that the liquidator give a personal undertaking as to damages - John Arnold's Surf Shop Proprietary Limited (in liquidation) v Heller Factors Proprietary Limited (1979) 22 SASR 20; Clinton Credits Proprietary Limited (in liquidation) v John McLeay Proprietary Limited and Mount (1983) 32 SASR 389 (though it is not clear from the report whether the liquidator in the John Arnold case was a party to the proceedings and in the Clinton Credits case the liquidator was a party to the appeal but was not a party at first instance.) (Emphasis added.) 22 It seems to me that this is not strong support for the proposition being advanced by the applicants in this case. It seems to me I would not wish to say categorically that a liquidator must on absolutely every occasion proffer an undertaking as to damages. The possible circumstances which can come before the court are almost limitless and there may be some circumstances in which it is possible to conceive that a liquidator might not be required to give the undertaking. One such example might be where the number of creditors involved in a winding up is vast - perhaps a consumer case of some kind. Another may be where it is patently clear that the liquidator is awash in assets and no question of his personal liability could ever arise. 23 The first of those two matters does not seem to me to bear very much on the present case. The second may be of some relevance. The applicants led evidence from Mr McCann about the asset position of the liquidators. And his evidence was that the receivers who had also been appointed to the assets of the company by the National Australia Bank had largely finalised their receivership subject to the recovery of some remaining bank guarantees which was expected shortly to happen. It was said by Mr McCann that the National Australia Bank was holding funds in excess of $1.2 million that he believed would become available to the liquidators once it was released by the National Australia Bank. 24 He also gave evidence that the liquidators had recently reached an arrangement with the bank whereby the bank agreed that it would retire its receivers over the majority of Walton's asset and would then release funds of about $700,000 to the liquidators. The balance of funds would be released when all remaining bank guarantees were returned. The arrangement was said by Mr McCann to be subject to a deed of release. Even though he thought there was no legal requirement for the liquidators to obtain approval before entering into the deed of release, he considered it appropriate to obtain the consent of the committees of inspection of Walton. 25 At the time he swore the affidavit, Mr McCann says there was about $700,000 in the liquidator's bank account. That evidence does not satisfy me that the assets which are in the hands of the liquidator are or will necessarily be such that no question of his own personal liability would ever arise. It is possible that that may come to pass, but it seems to me it is also possible that it will not. Effectively, the situation then is one where one has to apportion the credit risk that the undertaking as to damages gives rise to as between the respondent and the creditors who are standing behind the liquidators. Given the state of the evidence, it seems to me that it is the liquidators and the people who stand behind them who should bear that risk. For that reason, I would not be prepared to accept an undertaking in the form which has been proffered. 26 Mr Chesterman did indicate to me during the course of argument that if that was the view to which I came, then prior to me disposing of the matter he might be in a position to obtain different instructions. I will come back to that matter. I turn then to the third matter. Mr Wise submitted that it had not been shown, as it needed to be shown, that there was a risk that the assets would be dissipated. On an application such as the present, the evidence which is required on this topic does not need to be very great. It does not need to be shown on the balance of probabilities that dissipation will occur. 27 Effectively, the Court is engaged in a risk management assessment. The applicants' case in relation to this had the following elements. First, the liquidators had written to QHT in relation to the transaction embodied in the deed of assignment. This had occurred on 1 April 2016. They had informed QHT of their concerns about the transaction and had put them on notice of their intentions in relation to it. On 11 August, Mr McCann says that he wrote to the solicitors for QHT seeking their agreement that the dividend which was to be shortly paid by the liquidator should be paid to a neutral stakeholder. That letter was replied to on 17 August. The solicitors for QHT did not indicate that they agreed to that proposal. To summarise that evidence, the liquidators have asked QHT for its agreement to place the money in a stakeholder account and they have not received its agreement. 28 Secondly, it was submitted that I should take cognisance of the fact that the current liquidators had replaced the earlier administrators and liquidators who had, so it was said, been removed by the Full Court of this Court in circumstances which were said by Mr Chesterman, in some ways, to reflect negatively upon them. I am not terribly sure that I can do much with that. I was not taken to the judgment of the Full Court, and none of the material which was before that Court is before me. It is difficult for me to say that I would be able to conclude that there was something nefarious about the way the administrators had acted on the basis of that material. 29 Thirdly, it was said that there was a common director between QHT and Mawsons. Mawsons, I should add, were involved in the restructuring arrangements. It was not submitted that there was common ownership. Again, I do not think I can do terribly much with the fact that there is a single common director. 30 Fourthly, it was said that it could be inferred from an examination of the transaction that there was something suspicious about the deed of assignment. This part of the argument proceeded by reference to a report prepared about the affairs of Walton. That report, on its face, suggested that the debts which had been assigned for $30,000 under the deed of assignment were worth somewhere between $204,000 and $6.18 million. The proposition, as I understood it, was that, on its face, to accept payment of $30,000 looked irregular. 31 I might be disposed to accept that argument, but it seems to me that the transaction which happened appears to have been part of a larger transaction involving the sale agreement which took place three days later. In order to be satisfied that the transaction was irregular in the manner suggested by Mr Chesterman, I would need to know what the whole transaction was. That is particularly so in circumstances where, effectively, what is being submitted is that I should conclude that administrators who are presumably official liquidators, and hence officers of the Court, have misbehaved. The material which was put forward in that regard, when it is only partial, does not allow me to draw conclusions of that kind at the requisite standard. 32 A submission was made by Mr Wise that I should treat with some circumspection the figures contained in the Worrells report. Ultimately, this submission turned upon the proposition that some assets recorded in Worrells report as term deposits of $6.9 million were most likely being held as security by the bank for performance bonds, and hence were probably incorrectly included by Worrells as an asset which was likely to be available in an insolvency. I can see the force of that. However, there was no evidence before me that the term deposits were, in fact, being used for security in that fashion, so I give that argument no weight. 33 Those circumstances lead me not to be satisfied on an interlocutory hearing that I could properly conclude that the transaction which is before me is irregular. That matters because the irregularity is said by the applicants to form the basis, or one of the bases, upon which I should conclude that there is a risk of asset dissipation. I do not feel that I can use the matters which have been put before me in that way. There was also another point, which is that, effectively, what is being sought here is a freezing order over $700,000 which is to be received by the respondent or may already have been received by the respondent. It is not the proceeds of the deed of assignment itself. Effectively, what the applicants are seeking is to freeze the assets or freeze a nominated asset of the respondent to secure itself in the event that it obtains a judgment. 34 Before one could be persuaded to grant relief of that kind, I would need to have some plausible evidence that there was a risk that the respondent would not be able to meet the judgment. It may well be the case that the respondent will not be able to meet the judgment. I can readily appreciate why the suspicions of the applicants have been inflamed, but the fact of the matter is that there is before me nothing to suggest that the respondent is not in a position to meet its debts. No search of its property has been led. I do not know what real property it owns. I do not know what its paid-up capital is. It is not sufficient in cases of this kind simply to write a letter to the respondent and demand that it take a particular course. 35 It is for the applicants to prove something about the respondents's position. I know nothing about QHT. In those circumstances, I am not satisfied that I should conclude that there is a real risk of dissipation and I am not satisfied that I should conclude that the respondent is unable or will be unable to meet the judgment debt. For those reasons, although I am satisfied that the applicants had an arguable case for an injunction, I am not minded to grant the injunctive relief they seek, so the application will be dismissed with costs. I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.