McVeigh v Gogo's Food Service Pty Ltd, in the matter of Gogo's Food Service Pty Ltd

REVISED FROM THE TRANSCRIPT MCKERRACHER J: 1 This is an urgent application amended in the course of oral submissions by which the applicant seeks to have ratified by the Court the voluntary appointment of a liquidator, notwithstanding that a creditor's petition for winding up (WAD 182 of 2018, the ATO Proceedings) was known to be imminent. The urgency arises from the fact that the winding up application in the ATO Proceedings is listed on the Court's next business day. 2 The applicant seeks relief in the following terms: 1. An order that leave be granted to the applicant nunc pro tunc pursuant to section 490(1)(a) of the [Corporations Act 2001 (Cth) (the Act)] for Gogo's Food Services Pty Ltd (ACN 089 033 081) (the Company) to resolve that it be wound up voluntarily on 29 May 2018 and for the Voluntary Liquidator to be appointed liquidator of the Company on and from that date. 2. An order that the originating process filed in Proceedings WAD 182 of 2018 on 4 May 2018 (the ATO Proceedings) be dismissed pursuant to rule 39.03 of the Federal Court Rules 2011 (Cth). 3. An order that the plaintiff's costs in the ATO Proceedings be payable in accordance with section 556(1)(ba) of the Act [and be fixed at $2,946]. 4. An order that the Voluntary Liquidator's costs associated with this application be paid out of the liquidation of the Company. 5. Pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) of the Act in relation to the external administration of the Company, that s 91 of the Act operate such that the relation-back day be fixed at the date on which the application was made for the winding up in the ATO Proceedings, namely 4 May 2018. 3 Section 490 of the Corporations Act 2001 (Cth) provides as follows: 490 When company cannot wind up voluntarily (1) Except with the leave of the Court, a company cannot resolve that it be wound up voluntarily if: (a) an application for the company to be wound up in insolvency has been filed; or (b) the Court has ordered that the company be wound up in insolvency, whether or not the order was made on such an application; or (c) the company is a trustee company (within the meaning of Chapter 5D) that is in the course of administering or managing one or more estates. (2) A person with a proper interest (within the meaning of Chapter 5D) in the estate referred to in paragraph (1)(c), or who has any claim in respect of the estate, is entitled to be heard in a proceeding before the Court for leave under subsection (1). 4 I am informed that the petitioning creditor in the ATO Proceedings does not oppose orders being made in paras 1 and 4 of the application, and that assuming that the Court sees fit to make orders in terms of para 1 of the application, the ATO also consents to orders being made in terms of para 2 and para 3 of the application with costs for para 3 being fixed at $2946. 5 The applicant's affidavit reveals that he is an experienced chartered accountant and registered liquidator and director-in-principal of Avior Consulting Pty Ltd. He has over 18 years' relevant experience working in corporate restructuring in this country and in the United Kingdom. He produces the various Australian Securities and Investments Commission (ASIC) documentation and meeting minutes, a consent to short notice by shareholders for the calling of an urgent meeting (to which I will refer), a special resolution, the consent of the liquidator, and a true copy of a declaration of relevant relationships and/or a declaration of indemnities. 6 By way of background, the applicant explains that he was contacted on 28 May 2018 by Mr Govindha Rajalu Govardhan, a director of Gogo's Food Services Pty Ltd (ACN 089 033 081) (the Company), to discuss the financial position of the Company and the business known as 'GoGo's Madras Curry House'. The business is a well-known Indian restaurant in Mount Lawley, Western Australia, which has been trading for 22 years, operated personally by Mr Govardhan. Unfortunately, Mr Govardhan's health has deteriorated in recent months, such that he has been unable to work the business full time. There have been associated financial difficulties. 7 Mr Govardhan engaged chartered accountants to provide advice to the Company concerning its financial position. Mr Govardhan explained to the applicant that the ATO had commenced winding up proceedings against the Company. He had received advice that as a result of his health issues, the ATO would be likely to agree to delay hearing of the winding up application so that he could explore potential funding options to address the Company's position. 8 The Company's financial position was unhealthy. There was a deficiency of net assets of an estimated $670,000. The total assets were approximately $100,000. Total liabilities were approximately $770,000 of which the ATO's liability was said to be $220,000 and a secured loan to a major bank was said to be $445,000. Mr Govardhan explained to the applicant that the business was losing in the order of $2000 to $3000 a week, which was only likely to get worse as Mr Govardhan's health continued to deteriorate. Various options were considered. The applicant advised Mr Govardhan as to the legal consequences of continuing to trade in circumstances where he knew the business was making losses and was going to continue to make losses. The applicant advised Mr Govardhan that in those circumstances he may be personally liable for any losses incurred by the Company as a result of it continuing to trade while the Company was insolvent. Based on the advice and having regard to the size of the business, the Company's inability to raise funds, Mr Govardhan's deteriorating health and the fact that the Company was losing ongoing funds on a weekly basis, the applicant's advice was that the Company would probably not be able to be restructured through voluntary administration. Advice was given by the applicant that he should proceed immediately to arrange a creditor's voluntary liquidation. 9 A further meeting was held the following day, 29 May 2018 at 7.30 pm, which Mr Govardhan attended armed with the necessary documents to enable the voluntary liquidation to proceed and the appointment of the applicant as liquidator. 10 The applicant outlined the steps which have been taken since he has been appointed as liquidator of the Company. He deposes to having completed the following tasks in respect of the liquidation of the Company: (1) attending to the lodgement of the Form 505 with ASIC and the placement of the Form 505 on the ASIC notices board; (2) commenced conducting investigations into the: (a) financial circumstances and insolvency options of the Company; and (b) the location of the Company's assets and a potential realisation strategy; (3) in respect of the realisation strategy, the applicant has determined that it is most appropriate to continue to trade the business until all of the stock is realised, he estimates that all of the stock will be realised on or before 3 June 2018, at which time he intends to cease trading and close the business; (4) obtaining information regarding the claims of secured and unsecured creditors (including priority creditors) of the Company; (5) conferring and meeting with Mr Govardhan to obtain all books and records of the Company; (6) discussing the Form 507 report as to affairs and Form 509 presentation of summary of affairs of a company with the directors of the Company; (7) attending the Company's business premises and: (a) conducting an inspection of operations for health and safety purposes and for physical security of the Company's trading premises; (b) reviewing the Company's cash procedures and controls; (c) monitoring of trade-on activities in terms of purchase requirements and payroll; (d) dealings with customers of the Company and collecting accounts receivable; (e) surveying plant and equipment located at the Company's trading premises; (f) preparing roster regarding employee attendance at premises during trade-on; and (g) discussions with employees regarding company's winding-up and its consequences; (8) undertaking discussions with the director and third parties regarding appropriate duration of trade-on and shut-down procedures when trade-on ends; (9) obtaining insurance cover in respect of the Company's assets; (10) arranging the opening of a Company bank account; (11) instructing an auctioneer to prepare inventory and valuation of plant and equipment; (12) conferring with employee and immigration agents regarding s 457 bridging visas and the consequences of the winding up; and (13) preparing (but not distributing) notification letters for relevant agencies and essential services.

Consideration 11 I have had regard to the content of the applicant's affidavit in support and the submissions of Mr Abberton appearing for the applicant today. I have had regard to a number of authorities dealing with the relief that is sought today, including Re Halal Meats Australia Pty Ltd [2016] NSWSC 1946; Bredenkamp, in the matter of Rapid Fleet Rentals Pty Ltd (in liq) [2014] FCA 1307; Re Camarda & Cantrill Pty Ltd [2015] NSWSC 2067; Re North Western Fruitgrowers Pty Ltd [1965] VR 306; Re Pendonna Pty Ltd [2012] NSWSC 631; In the matter of U-Nited Warranties Pty Ltd [2012] NSWSC 1087; Shaw, in matter of B & V Lynch Pty Ltd v B & V Lynch Pty Ltd [2015] FCA 908; and Deputy Commissioner of Taxation v VFS Employment Services Pty Ltd, in the matter of VFS Employment Services Pty Ltd [2016] FCA 1054. 12 From these authorities, relevant factors to take into account in whether or not to grant leave include the following: (1) whether it is in some practical way preferable that a company be wound up voluntarily rather than compulsorily before such leave is granted; (2) the scope and extent of any work undertaken by the voluntary appointed liquidator since his or her appointment. The Court will consider possible duplication of work and additional expense which would ultimately reduce returns to the Company's creditors; (3) whether, if a new liquidator were appointed, there would be some disruption to the steps already taken by the liquidator in the activities conducted and dealings with key stakeholders, such as the ATO and banks and other creditors; (4) whether the relation-back day is likely to be affected for the purpose of voidable transactions; (5) the attitude of the petitioning creditor to the relief sought; and (6) whether or not the voluntary winding up proceeded despite knowledge that there was in existence an application for a Court ordered winding up. 13 Additionally I have had regard to: (a) the general cost of the respective appointments, including the rate of fees that may be charged (all other matters being equal); and (b) the fact that the retention of the voluntary liquidator will not necessarily be permanent. If there is good reason to do so, the creditors can replace the liquidator, but that is a matter for creditors. 14 In this instance, unlike a number of the cases to which I have referred, the resolution was passed with knowledge of the ATO Proceedings. However, it is also explained, and I accept the explanation, that there was a genuine concern about continuing to trade in circumstances where the Company was in a parlous financial position and where continuing to do so would be of no interest or benefit to creditors and could attract other liability. It is not as though it is a situation where the steps were taken in a covert manner and dealings between the applicant and the ATO appear to have been open and straightforward. 15 The evidence before me (unsurprisingly) does not reveal any potentially voidable transactions, but it is a relevant consideration as to whether there is a significant difference between the time for the relation-back day for the voluntary appointment or the Court appointment. The proposal advanced on behalf of the applicant in this case is that the relief sought be amended by the introduction of a further order which would ensure that the relation-back days are unaffected in the sense that the relation-back day would be adjusted to the date which would apply for the purpose of the Court appointed liquidator (as per proposed order 5 detailed at [2]). If there is any difficulty in that regard, an order for liberty to apply can overcome any problems which might occur. 16 I give substantial weight to the fact that the petitioning creditor is a sophisticated creditor and one of the two largest creditors and it does not oppose the relief sought. Clearly the ATO had sufficient interest in the matter to commence a winding up application, but it is satisfied that its interests are capable of being served if the Court sees fit by orders of the type sought today being made for the creditor's voluntary winding up continuing as an alternative for the appointment of a Court appointed liquidator. 17 The other practical factors such as duplication of work, disruption of progress and extra cost in changing liquidators would, in this case, favour the relief being granted. 18 The statutory provision does not require any special circumstances as such. The fundamental issue is whether the relief sought, being the voluntary winding up continuing rather than there being an alternate Court appointed liquidator, appears to be in the best interests of creditors and the public. That is so in this instance.

Conclusion 19 I am satisfied that this is a proper case to grant leave to the Company nunc pro tunc that it be wound up voluntarily, notwithstanding that an application for it to be wound up in insolvency had been filed and is about to be heard. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher.