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[2019] FCA 1184
Federal Court of Australia
2019-08-02
Gleeson J
Original judgment source is linked above.
Solicitor for the Defendants: Lancaster Law & Mediation
ORDERS NSD 2400 of 2018 IN THE MATTER OF BOKA BEVERAGES PTY LTD (IN LIQUIDATION) (ACN 600 149 871) BETWEEN: MELHELM PTY LTD (ACN 123 248 975) First Plaintiff
ICON BREWING COMPANY PTY LTD (SUBJECT TO A DEED OF COMPANY ARRANGEMENT) Second Plaintiff
AND: BOKA BEVERAGES PTY LTD (IN LIQUIDATION) (ACN 600 149 871) First Defendant
DANIEL IVAN CVITANOVIC IN HIS CAPACITY AS JOINT AND SEVERAL LIQUIDATOR OF BOKA BEVERAGES PTY LTD (IN LIQUIDATION) Second Defendant
NICHOLAS CRAIG MALANOS IN HIS CAPACITY AS JOINT AND SEVERAL LIQUIDATOR OF BOKA BEVERAGES PTY LTD (IN LIQUIDATION) Third Defendant
JUDGE: GLEESON J DATE OF ORDER: 2 August 2019
GLEESON J: 1 The first plaintiff (Melhelm) and the second plaintiff (Icon) seek the appointment of Trent Andrew Devine and Andrew John Spring as additional joint and several liquidators of the first defendant (Boka Beverages or company) for specified purposes pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) (IPS), being Sch 2 to the Corporations Act 2001 (Cth) (Act). The issues for determination, as identified by the plaintiffs, are: (1) whether the plaintiffs or either of them have standing to bring the application for appointment of special purpose liquidators (SPLs), having regard to the liquidators' rejection of their proofs of debt; (2) whether it is appropriate to appoint the proposed SPLs; and (3) if yes, the terms of the appointment. 2 Melhelm and Icon also seek to appeal against the rejection of their respective proofs of debt in the company's liquidation, pursuant to reg 5.6.54(2)(b) and (3) of the Corporations Regulations 2001 (Cth) and/or r 14.1(3) of the Federal Court (Corporations) Rules 2000 (Cth). However, they contend that this aspect of their application should abide the outcome of the application for appointment of the SPLs. 3 The second defendant (Mr Cvitanovic) and the third defendant (Mr Malanos) are joint and several liquidators of the company. They oppose the plaintiffs' application arguing, among other things, that no further investigations of the company's affairs are warranted and there is no prospect of any recovery.
Background facts 4 Boka Beverages was registered as a company on 17 June 2014. Marko Franovic has been the sole director and secretary of the company since its incorporation. From around the time of its registration, the company operated a beverage bottling plant from premises at 23 Ash Road, Prestons, in the state of New South Wales (premises). The registered proprietor of the premises is another company of which Mr Franovic is a director and a shareholder, Boka Investments Pty Ltd (Boka Investments). Boka Investments leased the premises to Boka Beverages for a five year term ending in 2019. 5 Boka Beverages packaged beer brewed by Icon at the premises. Icon had established its business at the premises prior to Boka Beverage's registration. 6 For the purpose of its business, Icon used certain brewing equipment owned by Melhelm. Melhelm is a consulting and equipment holding company. The equipment that Melhelm claims to own includes the following four items: (1) a Bright beer tank, serial number 13300; (2) a Keg Boy, serial number K-89404316-103238969; (3) laboratory equipment; and (4) an earth filter, serial number 071534 (disputed brewing equipment). 7 Melhelm claims that, in late 2013 or early 2014, its sole director, Hanna Melhem, moved brewing equipment owned by Melhelm, including the disputed brewing equipment, to a section of the premises. According to Mr Melhem, Melhelm's brewing equipment was leased to Icon for the purposes of its beer brewing business. Brewing equipment, including the disputed brewing equipment, was sighted at the premises by a valuer who valued the equipment in September 2016. 8 There is a dispute between the plaintiffs and Mr Franovic as to the terms on which Icon occupied the premises and the terms on which Boka Beverages packaged beer brewed by Icon. The plaintiffs referred to an unsigned agreement, expressed to be between Icon and Boka Beverages. Mr Franovic agreed in cross-examination that the relationship between Icon and Boka Beverages was consistent with the terms of the unsigned agreement, except that no sub-lease was granted and there was some difference in the pricing charged by Boka Beverages. The unsigned agreement includes the following: 5. BB agree to supply contract filling, pasteurising and packing of Icon beer and related products. As a part of this agreement BB agree to provide the following: i. All labour costs including loading and unloading of trucks, filling and packing, Quality Assurance for packing and filling, and production scheduling relating to filling and packing; ii. All Consumables used in filling and packing, including but not limited to hair nets, jet coder ink, etc; iii. Warehousing and production space for the brewery; iv. Packaging savings through current discounted suppliers; v. Storage of raw materials and packaging for up to 1 month; vi. Storage of finished product for 2 week [sic], with a fee of $5.00 per pallet or part thereof per week to be applied after this 2 week period; 6. Icon agree to supply the following under the terms of this agreement: i. Supply and access to all brewing equipment; ii. All brewery related staff; iii. All maintenance for the brewery plant and equipment. 7. Icon agree to pay BB the following rates for co-packing of Icon beer products: … 13. Boka [Investments] by its execution hereof agrees to provide to Icon a right of entry to the premises in the event of default or otherwise by BB pursuant to the lease, in order that Icon may continue to operate its business; … 15. Icon and BB acknowledge that this agreement shall be for a 5 year term, with further options for 2 further terms each of 5 years, such further terms to be at the option of Icon. 9 On 3 April 2017, Boka Beverages issued a statutory demand to Icon. The statutory demand claimed a debt due of $939,248.87 based on outstanding invoices dated from 24 October 2016 to 30 March 2017. 10 On 27 April 2017, Icon filed an originating process in the Supreme Court of New South Wales seeking to set aside the statutory demand (statutory demand proceeding). Icon claimed to be owed $1,735,708 by Boka Beverages for overcharging. 11 Mr Melhem gave evidence that, in about May 2017, Icon ceased brewing beer from the premises and vacated the premises, leaving the disputed brewing equipment. 12 In mid May 2017, Boka Beverages informed its customers that it was ceasing all production as of 16 May 2017. The evidence included a letter dated 16 May 2017 from Boka Beverages addressed "Dear Customer", which stated relevantly: Please be advised that we are ceasing all production as of today 16th May 2017. It was agreed with Icon Brewing that due to their outstanding debts they were to brew until April 2017 and then vacate the premises. 13 By letter dated 17 May 2017, from Mr Melhem to Mr Franovic and Bozo Franovic, Mr Melhem wrote, relevantly: Melhelm Pty Ltd is the owner of Brewery Equipment situated at 23 Ash Road Prestons (Melhelm Equipment). With the authority of Icon Brewing Company Pty Ltd, Melhelm will commence collecting the Melhelm Equipment from the week starting 31 May 2017. 14 According to Mr Franovic, when he received this letter, it was the first time that he learned of Melhelm and its interest in the brewing equipment situated at the premises. 15 There is evidence that Melhelm made unsuccessful attempts to collect its equipment from the premises in late May and June 2017. 16 By email sent on 7 June 2017, Peter Helene, solicitor acting for Boka Investments, wrote to Millie Garvin of Turks Legal, then acting for Melhelm, relevantly: Boka Investments Pty Ltd, the registered proprietor of the premises occupied by your client, has instructed me to act on its behalf in relation to this matter. My client has terminated Boka Beverages Pty Ltd lease because of outstanding rent and wishes to obtain possession of the premises so that they can be leased. … We understand that your client is presently undertaking brewing operations and upon completion of those activities it will vacate the premises and then arrange for the equipment to be removed. To ensure that the premises are restored after the removal of brewing equipment my client requires security (a bank guarantee would be acceptable) of $100,000 to ensure the premises are not damaged and restored to their pre-occupation condition. Having regard to the totality of equipment I trust that you will agree that this this request is reasonable. 17 There is evidence that, around this time, the gate to the premises was damaged and could not be closed properly for a period of about three weeks until it was repaired, leaving open the possibility that the equipment might have been stolen. However, there is also evidence that the equipment was still at the premises as late as 20 July 2017, when Mr Helene wrote to Ms Garvin as follows: My client Boka Investments Pty Ltd has instructed me to advise you that before your client can remove its equipment it must arrange for the removal of their bulk bags which are contained in 30 of those bags. Each bag weight is approximately 35kg making a total in excess of 1,000kg … 18 By email dated 24 July 2017, Ms Garvin asserted that Melhelm had attempted to remove its bulk bags on two occasions, but had been denied entry on each occasion. Ms Garvin asked when Boka Investments would provide access for Melhelm to remove its equipment. 19 There is conflicting evidence about when Boka Beverages vacated the premises. According to Mr Franovic, Boka Beverages had left the premises by 30 June 2017, although it had some of its own plant and equipment on the premises which was not removed until December 2017. According to Mr Franovic, Boka Beverages incurred a liability for rent to Boka Investments until December 2017. 20 On 11 August 2017, in a second proceeding in the Supreme Court (delivery up proceeding), the Supreme Court made orders including an interim injunction in the application of Melhelm and Icon restraining both Boka Investments and Boka Beverages from "selling … or otherwise dealing with the items of Beer Brewing or associated equipment identified in the schedule of equipment attached to the orders". The schedule of equipment listed, among other things, the four items specified above. 21 The liquidators concede that sometime between when Icon vacated the premises and 17 August 2017, when a Supreme Court ordered inspection by Mr Melhem took place, some items owned by Melhelm went missing. 22 In a statement of claim filed in the delivery up proceeding and dated 17 October 2017, Melhelm and Icon sought an order that Boka Investments and Boka Beverages deliver up to them "Equipment", being items of beer brewing equipment identified in the report of the September 2016 valuation. Melhelm and Icon also sought damages for the detention or conversion of the "Equipment". The statement of claim alleged, relevantly: On 17 August 2017, pursuant to orders of Slattery J made in these proceedings on 15 August 2017, representatives of the first and second plaintiff attended the Property to inspect the Equipment. As at the date of that inspection, the following items of the Equipment had been removed from the Property: (i) a Keg Boy; (ii) all laboratory equipment; and (iii) a diatomaceous earth filter (DE filter) … 23 Senior counsel for the defendants, Mr Marshall SC, noted that the statement of claim did not allege that the Bright beer tank, which was one of the four items of disputed brewing equipment, was missing. 24 The statutory demand proceeding was the subject of a contested hearing before Brereton J on 21 and 22 November 2017. Following the hearing, judgment was reserved. 25 Mr Franovic acknowledges that he sold the Bright beer tank to a third party, Brewpack Pty Ltd, although he says that he did this with the permission of Mr Melhem who had sold him the tank and another similar tank in return for a set off of $74,000 against a debt owed to Boka Beverages by Icon in 2014. Mr Cvitanovic reported that the company made a sale to Brewpack on 27 February 2018 in an amount of $6,750 (exclusive of GST), said to be a sale of the relevant tanks. The liquidators noted that, in a statement given by Mr Melhem to police in November 2017, Mr Melhem had said that he sold one of two Bright beer tanks to Mr Franovic but he could not remember which one. 26 According to Mr Franovic, in March 2018, plant and equipment owned by Melhelm was removed from the premises by contractors acting on behalf of the ANZ Bank pursuant to personal property securities that the bank held over the equipment. 27 Icon was placed into administration on 21 May 2018. 28 On 22 June 2018, Mr Franovic attended the Supreme Court for a directions hearing in relation to the statutory demand proceeding. According to him, he formed the view on that occasion that a judgment was not likely to be delivered within a short timeframe and, as Boka Beverages had ceased trading about 12 months earlier, Mr Franovic decided to appoint a liquidator to Boka Beverages. 29 The company went into liquidation on 5 July 2018, initially as a members' voluntary winding up. 30 On 30 July 2018, each of Melhelm and Icon lodged proofs of debt in the company's winding up. Melhelm's proof of debt was in an amount of $605,000. The particulars of the debt are stated as follows: Damages for the detention of/conversion of: • Fermentation Tank (2) • Keg Boy • DE Filter • Lab Equip • GEA Centrifuge 31 The proof of debt attached the statement of claim filed in the delivery up proceeding. 32 Icon's proof of debt was in an amount of $1,372,979. The particulars of the debt are as follows: "Loss and damages incurred due to being denied access to the plant and equipment and to the Prestons Premises." 33 In August 2018, Mr Cvitanovic requested further information to support the proofs of debt. 34 On 31 August 2018, Melhelm and Icon proposed to Mr Cvitanovic that the members' voluntary winding up be converted to a creditors' voluntary winding up on terms, relevantly, that the claims made by Melhelm and Icon be dealt with via the proof of debt process and the delivery up proceeding be discontinued. 35 On 20 September 2018, the winding up was converted to a creditors' voluntary winding up. The minutes of the meeting of the company's creditors that day record that the liquidator acknowledged Melhelm and Icon as "contingent creditors… but could not admit the whole amount on their proof of debts due to a lack of supporting documentation". 36 On 15 October 2018, Melhelm applied to ASIC for eligible applicant status with a view to an application for examination summonses and orders for production of documents in relation to the examinable affairs of Boka Beverages. A principal purpose of the proposed examinations was to determine whether Melhelm had a potential claim against the company for damages "for the detention/conversion of brewing equipment valued at at least $605,000". 37 Melhelm's application to ASIC also submitted that the following matters (said to have been identified by the liquidators in their 4 October 2018 report to creditors) require further investigation: (1) that the company may have traded whilst insolvent for a period of time prior to the liquidators' appointment; (2) the solvency of the company was highly dependent upon loan funds provided by a related entity, Boka Holdings (Aust) Pty Ltd (Boka Holdings); (3) there are transactions of the company that appear to be in the nature of voidable transactions; and (4) the company appears to have disposed of a significant amount of plant and equipment during the period from 1 July 2017 to 5 July 2018. 38 Melhelm's application to ASIC identified the following reasons for the proposed investigations: (a) investigate the Company's solvency position, in particular to: i. determine when the Company first became insolvent, or in the alternate, whether the presumption of insolvency is available in this liquidation due to deficiencies in the books and records; ii. quantify the unpaid debts of the Company which were incurred after the Company became insolvent (or is presumed to have been insolvent), which would determine the value of any claim for insolvent trading; iii. accordingly, determine whether there is a claim against Mr Franovic for insolvent trading pursuant to section 588M of the Act; and iv. in the event it appears that there is a potential claim against Mr Franovic, determine whether he may be entitled to invoke the defences in section 588H of the Act, (b) obtain the books and records of the Company; (c) investigate the relationship and nature of the transactions between the Company and Boka Holdings; (d) investigate whether there are any claims available with respect to voidable transactions; (e) investigate the disposal of plant and equipment by the Company during the period after 1 July 2017 to the Appointment Date and investigate whether there are any claims with respect to the disposal of plant and equipment; and (f) investigate whether any parties have knowledge or documents that will assist Melhelm to determine: i. the circumstances surrounding the termination of the Licence Agreement by the Company and Icon being locked out of the Premises; ii. whether the Brewing Equipment is at the Premises and, if not, the current location of the Brewing Equipment; and iii. who currently has possession of the Brewing Equipment, (g) investigate whether Melhelm has any claims against the Company, Mr Franovic, Boka Investments and/or BrewPack with respect to the Brewing equipment including for: i. an order for possession of the Brewing Equipment; and/or ii. damages for the detention of/conversion of the Brewing Equipment, (h) if Melham [sic] has a claim against the Company, whether the Company and/or the Liquidators have a cross-claim against: i. Mr Franovic for breach of his duties to the Company by causing it to carry out the Actions by which it became liable to Melham [sic]; and/or ii. the Brewpack Entities and/or Boka Investments pursuant to s79 of the Act for being knowingly and directly or indirectly involved in Mr Franovic's breach of duty to the Company; and (i) assist the Liquidators and/or Melhelm to form a view as to the capacity of the parties identified in paragraphs (g) and (h) above to satisfy any judgment that may be entered against them arising out of any legal proceeding the Liquidators and/or the Company and/or Melhelm may commence against them. 39 By letter dated 15 October 2018, Justin Ward of Macleay Partners, on behalf of Melhelm, asked Mr Cvitanovic to refrain from adjudicating on the proofs of debt until Melhelm's application to ASIC had been determined. The letter foreshadowed a request that, in the event that Melhelm (or Icon) was granted eligible applicant status, the liquidators refrain from adjudicating on the proofs of debt until the investigation process was completed. 40 On 31 October 2018, the liquidators rejected the two proofs of debt in their entirety. 41 On 3 December 2018, ASIC authorised Melhelm as an eligible applicant for the purposes of Div 1 of Pt 5.9 of the Act. 42 The liquidators issued a further report to creditors dated 6 February 2019. The report sets out additional steps taken in the liquidation and identifies the potential dividend to unsecured creditors as "0 cents/$".
Standing to apply for appointment of SPLs 43 Section 90-15(1) of the IPS provides that the Court may make such orders as it thinks fit in relation to the external administration of a company. By s 5-15 of the IPS, a company is taken to be under "external administration" if, relevantly, a liquidator has been appointed in relation to the company. 44 By s 90-15(2), the Court may exercise the power under s 90-15(1) on its own initiative, during proceedings before the Court; or on application under s 90-20. In this case, the Court is asked to exercise the power under s 90-15(1) on an application under s 90-20. 45 Section 90-20 specifies who may apply for an order under s 90-15. Relevantly, a person with a financial interest in the external administration of the company may apply. By s 5-30 of the IPS, a person has a financial interest in the external administration of a company if, relevantly, the person is a creditor of the company: s 5-30(a)(ii). The present liquidators did not accept that Melhelm and Icon are creditors of the company, submitting that their proofs of debt have been rejected and neither is owed a debt. 46 By s 5-5, "creditor", when used in relation to a company under external administration, means a creditor of the company. The core meaning of "creditor" is a person to whom a debt is owing: BE Australia WD Pty Ltd (subject to a Deed of Company Arrangement) v Sutton [2011] NSWCA 414; (2011) 82 NSWLR 336 (BE Australia) at [133]. In its widest sense, the word "creditor" includes all persons having any pecuniary claims against the company: Re Midland Coal, Coke & Iron Company [1895] 1 Ch 267 at 277 and see s 553 of the Act. A person has a claim within the meaning of s 553 if they have a basis, founded on an existing legal right, for asserting a right to participate in the division of the assets of the company: BE Australia at [107]. 47 The fact that a person's proof of debt has been rejected by a liquidator does not, of itself, deny that person the status of creditor because that decision may be the subject of an appeal. Consistent with this, reg 5.6.54 of the Corporations Regulations 2001 (Cth) provides that a "creditor" may appeal against the rejection of a formal proof of debt or claim. 48 Without purporting to determine the appeals against rejection of the proofs of debt, on the facts set out above, I am satisfied that Melhelm has a basis for asserting a right to participate in the division of the assets of Boka Beverages and, consequently, that it is a "creditor" within the meaning of s 5-30 of the IPS. This interpretation is consistent with the decision in James, in the matter of Liquor National Pty Ltd (in liq) v Liquor National Pty Ltd (in liq) (No 2) [2017] FCA 1154, in which Jagot J ordered the appointment of an SPL on the application of Mr James, whose claim to be a creditor had not been determined but, according to her Honour (at [10]), was "genuinely made and cannot be dismissed as mere fancy". In In the matter of ACN 152 546 453 Pty Ltd (formerly Hemisphere Technologies Pty Ltd) (in liq) [2018] NSWSC 1002 (Hemisphere Technologies), Gleeson JA found (at [18]) that a party who claimed to be a creditor and who had lodged a proof of debt was a "creditor of the Company" with standing to apply for an order under s 90-15. I also note that, in Commonwealth of Australia, in the matter of ACN 093 117 232 Pty Ltd (in liquidation) v ACN 093 117 232 Pty Ltd (in liquidation) [2018] FCA 1922 at [31], Derrington J concluded that a contingent creditor had standing to apply for the appointment of an SPL.
Grounds for appointment of SPLs 49 Section 90-15(3) sets out examples of orders that may be made under s 90-15(1), including "an order that another registered liquidator be appointed as the external administrator of the company": s 90-15(3)(c). Recent cases in which the Courts have made orders for the appointment of a special purpose liquidator under s 90-15(1) in a creditors' voluntary winding up are GDK Projects Pty Ltd, in the matter of Umberto Pty Ltd (in liq) v Umberto Pty Ltd (in liq) [2018] FCA 541 (GDK Projects); Hemisphere Technologies. 50 Section 90-15(4) of the IPS states: (4) Without limiting the matters which the Court may take into account when making orders, the Court may take into account: (a) whether the liquidator has faithfully performed, or is faithfully performing, the liquidator's duties; and (b) whether an action or failure to act by the liquidator is in compliance with this Act and the Insolvency Practice Rules; and (c) whether an action or failure to act by the liquidator is in compliance with an order of the Court; and (d) whether the company or any other person has suffered, or is likely to suffer, loss or damage because of an action or failure to act by the liquidator; and (e) the seriousness of the consequences of any action or failure to act by the liquidator, including the effect of that action or failure to act on public confidence in registered liquidators as a group. 51 In GDK Projects, Farrell J said (at [33]): The power to make orders conferred by s 90-15(1) contains no equivalent of s 511(2) which permitted the Court to accede to an application "if satisfied that ... the exercise of power will be just and beneficial". The power is, in its terms, unconstrained. Section 90-15(4) lists some matters the Court is entitled to take into account but that list is expressed to be "[w]ithout limiting the matters which the Court may take into account when making orders". In Walley, in the matter of Poles & Underground Pty Ltd (Administrators Appointed) [2017] FCA 486, Gleeson J observed at [41] that the question of whether to exercise the power under s 90-15 of Sch 2 can be answered by reference to principles that applied to the exercise of the discretion under the provisions previously contained in ss 479(3) and 511. I agree that those cases can be a useful guide. Despite the breadth of the power conferred by s 90-15(1), it is difficult to envisage circumstances where the power would be exercised if the Court could not be satisfied that it would be just and unless the applicant had demonstrated sufficient utility to the external administration. 52 In Hemisphere Technologies, Gleeson JA said (at [20] and [21]): [20] Although s 90-15 is expressed in slightly wider terms than s 511 of the Corporations Act, in an application such as the present for the appointment of an additional liquidator, guidance as to the approach the Court should take can be found in the earlier authorities dealing with such applications under s 511 of the Corporations Act: see, for example, Lo v Nielsen & Moller; and Re 77738930144 Pty Ltd (in liq) (formerly Commercial Indemnity Pty Ltd) [2017] NSWSC 452. Is an additional liquidator necessary? [21] The present liquidators are holding funds of approximately $93,000 as at November 2017. The amount of their unpaid remuneration and estimated disbursements to the finalisation of the liquidation (assuming no recovery actions) is $38,700. In his affidavit, Mr Tayeh deposed that the estimated return to creditors is less than one cent in the dollar (assuming no recovery action). There is no evidence that any creditor has responded to the liquidators' invitation to fund investigations and potential actions the liquidators have identified in their report to creditors. 53 In In the matter of Atlas Construction Group Pty Ltd (in liquidation) - Fitz Jersey Pty Limited v Fraser [2018] NSWSC 1189 (Atlas) at [91], Ward CJ in Eq referred to each of these passages with approval, saying: [A] special purpose liquidator will not be appointed unless it would be just and beneficial to creditors. In GDK Projects, Farrell J (at [33]) considered that the power should not be exercised if the Court could not be satisfied that it would be just and unless the applicant had demonstrated sufficient utility to the external administration. Similarly, in Hemisphere Technologies, Gleeson JA at [21] determined the question by asking whether an additional liquidator was necessary (having regard to the special purposes identified in the amended originating process). 54 In In the matter of Glenfyne Farms International AU Pty Ltd (in liquidation); In the matter of GI Commercial Pty Ltd [2019] NSWSC 161 at [52], Rees J said, referring to s 90-15(4): These considerations, albeit not exclusive, suggest that there should be some failure on the part of the liquidator to attend to their duties before an order is made under section 90-15. This is confirmed by subsection (5), which empowers the Court to make orders that an external administrator be personally liable for the costs of an application for such an order and, in subsection (6), the power to order that an external administrator is personally liable to make good losses caused to the company. However, I note that Black J did not approach section 90-15 as so confined in In the matter of Manband Pty Limited (in liquidation) (subject to Deed of Company Arrangement) [2018] NSWSC 1282, where his Honour made an order under section 90-15 to terminate a member's voluntary winding up. 55 In In the matter of Manband Pty Limited (in liquidation) (subject to Deed of Company Arrangement) [2018] NSWSC 1282 (Manband) at [19], Black J concluded that the Court had power under s 90-15 to terminate a voluntary winding up in accordance with a deed of company arrangement without any suggestion of failure on the part of the liquidator. 56 In Tucker, In the matter of Black Oak Minerals Ltd (Subject to a Deed of Company Arrangement) (in liq) [2019] FCA 293, Banks-Smith J also exercised the power under s 90-15 to terminate a winding up, following Manband. 57 It is appropriate to appoint an SPL if: (1) there are matters that require investigation by a liquidator with a view to possible recovery for creditors; (2) the current liquidators have insufficient funds and insufficient prospects of obtaining funding to pursue an investigation; (3) a creditor is prepared to fund investigations and recovery actions but only on the condition that another liquidator be appointed; and (4) such an appointment would be beneficial to the winding up and the creditors as a whole: Deputy Commissioner of Taxation, in the matter of Italian Prestige Jewellery Pty Limited (in liq) ACN 116 031 022 v Italian Prestige Jewellery Pty Limited [2018] FCA 983 (Italian Prestige Jewellery) at [34]. 58 As to the first matter, it is necessary to identify with specificity the "special purposes" (or powers) for which the appointment of the special purpose liquidator is sought: Atlas at [90] citing, inter alia, GDK Projects at [2] and Hemisphere Technologies at [22]. Examples of purposes that have been identified as matters for investigation by an SPL include whether any of the directors or officers of a company breached their statutory and or fiduciary duties to the company; whether transactions between the company and a specified third party were voidable transactions within the meaning of s 588FE of the Act; any dealing with an asset owned legally or beneficially by the company to a specified third party; and any claim that the company may have or may have had against a specified third party. 59 It is not necessary or appropriate to make findings on the potential claims in determining the application for the appointment of the SPLs: GDK Projects at [36]; Italian Prestige Jewellery at [37].
Matters requiring investigation 60 The plaintiffs contended that the evidence of the missing brewing equipment provides a more than sufficient basis to conclude that there are matters that require investigation. The plaintiffs sought to define the matters to be investigated by the proposed SPLs by reference to the affidavits of Clayton Allen Davis and Mr Melhem, both affirmed 20 December 2018. 61 The liquidators' main objections to the proposed further investigations were: (1) they had undertaken sufficient investigation in the circumstances of the company, even though they were unfunded; (2) the investigations would involve a duplication of work already undertaken; and (3) it was pointless in the absence of any third party creditor of the company and in the absence of any prospects of recovery. 62 The liquidators submitted that, in effect, the plaintiffs seek the appointment of the SPLs to "reinvestigate all possible recovery sources; and second to help [them] in their crusade to claim damages against someone for whatever happened to some of their brewing equipment". 63 In his affidavit evidence, Mr Cvitanovic expressed the belief that the plaintiffs have an illegitimate purpose in bring this proceeding, namely "to establish a claim against a related third party that may have the capacity to pay such claims". 64 Mr Davis's affidavit, sworn 20 December 2018, identifies the following areas for investigation: (1) the solvency of the company prior to the appointment of the liquidators; (2) the relationship and transactions between the company and Boka Holdings; (3) whether there are any potential claims with respect to voidable transactions; (4) the disposal of assets, including plant and equipment by the company during the period after 1 July 2017, including whether those disposals were at an undervalue; and (5) whether there are any other claims, for example for breach of duties owed to the company pursuant to ss 180, 181 and 182 of the Act. 65 Mr Melhem's affidavit, affirmed 20 December 2018, identifies the following matters for investigation: (1) Whether the company (and/or Mr Franovic, either directly or as an accessory), with no right or entitlement to do so, may possibly have wrongly: (a) terminated the agreement by which Icon was permitted to occupy a portion of the premises; (b) locked Icon out of the premises; (c) denied Icon and/or Melhelm access to the disputed brewing equipment; (d) detained the disputed brewing equipment; (e) used the disputed brewing equipment for their own purposes; (f) on-sold or leased/licenced the disputed brewing equipment (at least some of it possibly to BrewPack); and/or (g) allowed and/or authorised Boka Investments access to the premises and the disputed brewing equipment, following which Boka Investments became responsible for any of the actions set out at (b) to (f) above. 66 Mr Melhem's affidavit raises the following additional concerns about the conduct of the company and Mr Franovic: (a) Mr Franovic may possibly have caused or allowed the Company to carry out, or failed to prevent it from carrying out, the Actions; and (b) more particularly, Mr Franovic may possibly have caused or allowed the Company to terminate the agreement by which Icon was permitted to occupy a portion of the Premises, locked Icon out of the Premises and caused the Company's cash flow to be negatively affected (which may, in turn, have led to Baka Investments' termination of the Company's lease of the Premises due to overdue rental payments). [38] Further or alternatively to paragraph 37 above, I have a further concern that Boka Investments and/its [sic] director Bozo Franovic, with no right or entitlement to do so, may possibly have wrongly terminated the Lease and been responsible for the actions set out at paragraph 36(b) to (f) above. [39] There appears to be some discrepancies as to what occurred between the Company and Boka Investments in and about June 2017 (being about the time that Icon vacated the Premises, the Company subsequently vacated the Premises and Icon and/or Melhelm were denied access to the Brewing Equipment). According to a report from the Liquidators dated 4 October 2018, the Company "ceased trading on 30 June 2017 as the Sole Director no longer wanted to operate the business, and he wanted his related entity, the Landlord Company, to receive rentals from a third-party tenant". If the reference to the third-party tenant is to Icon, then I do not consider that statement to be accurate because, as I explained above, Icon vacated the Premises in about May 2017. [40] In the circumstances, it appears that Bozo Franovic may have knowledge, and both Boka Investments and Bozo Franovic may have information and documents in their possession, that will assist in investigations regarding the Company's examinable affairs. 67 In addition, Mr Melhem's affidavit raises the following concerns about the winding up of the company and the conduct of the liquidators: (a) the fact that Mr Graham Lancaster of Lancaster Law (Mr Lancaster) has previously acted as the solicitor for the Company and Boka Investments in the Supreme Court Proceeding, and is now acting as the solicitor for the Liquidators in the winding up of the Company, and therefore may have a perceived or actual conflict of interest especially in circumstances where the Company may have potential claims against Boka Investments, as identified at paragraph 38 above; (b) the apparent failure to properly investigate or at all possible voidable transactions and other claims that may be able to be brought by the Liquidators for the benefit of creditors (I refer to paragraph 25 of the Davis Affidavit); and (c) the failure by the Liquidators to provide Melhelm and/or Icon with a reasonable period of time to fully investigate and substantiate the claims set out in the Proofs of Debt before the Liquidators adjudicated on the Proofs of Debt (I refer to paragraphs 28 to 45 of the Davis Affidavit). [42] I, as the sole director of Melhelm, am concerned that the Liquidators failed to properly investigate, or at all, the potential claims set out at paragraphs 36 to 38 above as well as other claims that may be available to the Company (such as in relation to possible insolvent trading by Mr Franovic, I refer to paragraph 25 of the Davis Affidavit). [43] I consider that there is a reasonable apprehension that the Liquidators may be impeded or inhibited from taking actions that might otherwise be taken in the interests of all creditors or would not take them with the necessary degree of impartiality.
Possible recoveries 68 In their reports to creditors, the present liquidators identified matters for investigation by a liquidator, but which have not been investigated by reason of their lack of funding. However, ultimately Mr Marshall SC submitted that the liquidators have done all the necessary work without funding and the 6 February 2019 report contains "everything that one needs to know".
Solvency and insolvent trading 69 As noted above, in their 6 February 2019 report to creditors, the liquidators stated that they were "without sufficient funds to attempt to secure further records of the Company (if they exist), to complete a solvency report and/or to obtain advice on the presumption of insolvency". 70 However, as to the presumption of insolvency, the liquidators expressed the view that the company complied with its obligations to maintain adequate books and records. 71 The liquidators state that the company's balance sheet shows that it was insolvent as at 30 June 2015 and they express the view that the company relied upon financial support from related entities to discharge third party unsecured creditor claims at all times. 72 The report also states that "if the related entities did not enforce payment, then the Company had a surplus of assets over liabilities and was solvent at all times". 73 Without reaching a conclusion on the company's insolvency, the liquidators also have not quantified the unpaid debts of the company incurred after the company became insolvent (or was presumed to have been insolvent). 74 The liquidators also noted that any possible defences to insolvent trading have not been considered. In cross-examination, Mr Devine accepted that, if the company had relied upon related party support to pay creditors that were due and owing throughout its life, this would be a defence to a claim of insolvent trading.
Plant and equipment 75 The 4 October 2018 report stated that the liquidators had not completed their investigations in relation to the disposal of plant and equipment during the period from 1 July 2017 to 5 July 2018. 76 Mr Devine noted that, as set out in the 4 October 2018 report to creditors (and repeated in the 6 February 2019 report to creditors), the company balance sheets as at 30 June 2017 and 30 June 2018 show a reduction in total assets from $1,890,952.59 to $209,949.41, while the liquidators set out a fair market estimated value for the remaining assets of $52,000-$65,000. Mr Devine expressed the view that further investigation is required to review the disposal of plant and equipment by the company. 77 The 6 February 2019 report records details concerning the sale of plant and equipment prior to 5 July 2018, including an observation that the majority of the items were sold through expressions of interest to third parties by way of a public offering. Mr Devine was not asked by either party to address whether the information in the 6 February 2019 report affected his opinion that further investigation was required.
Voidable transactions 78 In the 6 February 2019 report to creditors, the liquidators stated that their investigations into preferential payments for the period of six months prior to the commencement of the winding up revealed no preferences. The liquidators noted that the company ceased to trade on or around 30 June 2017 and settled the majority of creditor payments outside the preference period. 79 The report also states that the liquidators had not identified any uncommercial transactions or any unreasonable director-related transactions, although it refers to a payment of $300,000 to Mr Franovic after 27 April 2017, when Icon made its counterclaim in response to the statutory demand Icon had received from the company. In evidence, Mr Cvitanovic identified this as a cash payment, saying: "[I]f that counterclaim was enforced and a judgment debt came down for $1.9 million, then clearly the $300,000 was an unreasonable director-related transaction." 80 The report also refers to payments to Mr Franovic of $500,000 during the 2017 financial year. 81 In their October 2018 report to creditors, the liquidators stated that there were insufficient funds in the liquidation to indemnify them for the cost of conducting further investigations in an effort to identify any potential voidable transactions, and they had invited creditors who were prepared to provide funding to contact them to discuss the purpose and extent of that funding. The liquidators referred to this statement in their February 2019 report. 82 Mr Devine was not asked by either party to address whether the information in the 6 February 2019 report affected his opinion that further investigation was required in relation to insolvent trading, potential voidable transactions, and the possible sale of plant and equipment at an undervalue.
Melhelm claims 83 Melhelm claims that, from 17 May 2017, when Melhelm asserted its claim as owner of brewery equipment, there was an involuntary bailment of the equipment from Melhelm to Boka Beverages, with Boka Beverages owing duties to Melhelm by reason of its continued possession of the equipment. Melhelm argues that, being on notice of its claim to ownership, Boka Beverages "took upon [itself] an obligation to the plaintiffs to exercise due care for the safety of the goods, although there was no contractual relation or attornment between the defendants and the plaintiffs": Gilchrist Watt and Sanderson Pty Ltd v York Products Pty Ltd [1970] 2 NSWR 156; (1970) 44 ALJR 269 at 271. 84 Melhelm argues that Boka Beverages had a tortious obligation not to convert the goods, which it contravened as follows: (1) With respect to the Bright beer tank, it committed a conversion when, on Mr Franovic's own admission, that tank was sold to Brewpack. (2) With respect to the balance of the goods, if they were sold, wrongfully retained or destroyed by Boka Beverages, then again Boka Beverages committed a conversion. However, even if they were wrongfully taken or received from the premises by someone not entitled to do so (for, example, while the gate to the premises was damaged) or lost by Boka Beverages in breach of duty as bailee, then that is also a conversion. 85 The liquidators accepted that Boka Beverages was an involuntary bailee of the brewing equipment that was on the premises from at least the time when Icon and Boka Beverages ended their agreement until Boka Beverages ceased to have possession of and control over the premises sometime in the second half of June 2017. The liquidators contend that there was a change of involuntary bailors from Boka Beverages to Boka Investments following the departure of Boka Beverages. 86 I accept that Melhelm's claim has possible merit. There is evidence that Boka Beverages had possession over Melhelm's disputed brewing equipment in circumstances giving rise to some form of bailment (whether gratuitous or involuntary). Subsequently, equipment was found to be missing in circumstances that may constitute a breach of that bailment. In particular, there is evidence that Boka Beverages may have left the equipment in the possession of Boka Investments without Melhelm's consent. It is not obvious that the company relieved itself of any obligations as bailee of the brewing equipment when it left the equipment in the possession of Boka Investments, as the liquidators seem to suggest. Nor is it obvious that the liquidators required evidence that Boka Beverages or Mr Franovic had actually taken part in converting the equipment to make out their claim, which was what Mr Cvitanovic said he required to be satisfied that Melhelm was a creditor. 87 In considering Melhelm's claim, it would be necessary to consider the standard of care arising out of any bailment and whether any refusal to permit recovery of the goods from the premises involved a breach of bailment. 88 It is not appropriate to attempt to resolve the competing assertions about the ownership of the Bright beer tank on this application.
Icon claims 89 The plaintiffs contend that the arrangements between Boka Beverages and Icon included an arrangement that Melhelm's brewery equipment be stored on the premises. They contend that possession of the equipment was transferred by Icon to Boka in relation for the payment of money to Boka for storage and the bottling of the beer manufactured from it. There is evidence for the former contention. The latter is far from obvious but not inconceivable: cf. Palmer N, Palmer on Bailment, (3rd ed, Sweet & Maxwell, 2009) [1-134]. 90 Icon claims that it has two causes of action against Boka Beverages, arising out of the company's breach of contract and breach of duty as bailee of the brewery equipment. 91 The breach of contract claim is based on the following propositions: (1) Boka Beverages covenanted to permit Icon a right of entry to the premises in order that Icon could continue to operate its business, as recorded in cl 13 of the unsigned agreement; and (2) from 24 May 2017, Boka Beverages prevented Icon from accessing the premises in breach of their agreement. 92 The breach of contract claim is not supported by the evidence. Clause 13, set out above, records an agreement by Boka Investments, not by Boka Beverages. Further, the evidence before the Court does not support a conclusion that Boka Beverage prevented Icon from accessing the premises at any time. 93 The bailment claim is as follows: The bailment was either for a term of 5 years (see cl 15 [of the unsigned agreement]) or was terminable at will; either way, by preventing access to the premises, Boka [Beverages] undertook "an act inconsistent with or repugnant to the bailment [which] terminates the bailment and gives to the bailor an immediate right to possession": Hill v Reglon Pty Ltd [2007] NSWCA 295 at [43] citing North General Wagon & Finance Co Ltd v Graham [1950] 2 KB 7. Boka [Beverages] was obliged to redeliver the Equipment to (or at the direction of) Icon at the conclusion of the bailment (whether in April [2017], when the arrangements between them ended or, at the latest, in May 2017, when the demand was made for their return). By failing to return the Equipment, Boka breached its duty as bailee. That claim may be seen as a species of detinue or as a failure to take reasonable care. As McPherson J (with whom Macrossan and Shepherdson JJ agreed) said in Jackson v Cochrane [1989] 2 Qd R 23 at 26 (citations omitted), "Expressed simply, a bailee is liable for loss or damage resulting from his dealing with the goods bailed in a manner not authorised by the bailor". 94 The first proposition is not supported by the evidence, as there is no evidence that Boka Beverages prevented Icon's access to the premises. To the contrary, the evidence is that Icon vacated the premises, leaving Melhelm's equipment behind. As to the second proposition, it may be arguable that a bailment was created when Icon left the equipment at the premises then occupied by Boka Beverages giving rise to an obligation on the part of Boka Beverage to return the equipment to Icon on demand, but there is no evidence that Icon made any attempt to recover possession of the equipment. As to the third proposition, the plaintiffs did not explain the source of any obligation on Boka Beverages to return the equipment, as opposed to an obligation to permit retrieval of the equipment (which was not sought by Icon). 95 For these reasons, I am not satisfied that there is a claim available to Icon, of either kind identified by the plaintiffs, which warrants investigation.
Funding 96 The present liquidators do not have funding to pursue further investigations. Further, Mr Cvitanovic has previously not been willing to accept funding from Melhelm and Icon unless they established to his satisfaction that they were creditors. Nor was he willing to accept funding to assist him to form a view as to whether or not they were creditors by obtaining further information and documentation. 97 The liquidators have no intention of conducting any further investigations into the affairs of the company. Mr Cvitanovic's view is that the affairs of the company should come to an end without any further cost. 98 In those circumstances, it is plain that the current liquidators have neither the means nor the intention to obtain the means to pursue any further investigation of the affairs of the company. 99 Melhelm is prepared to fund investigations and recovery actions and is willing to do so by funding the proposed SPLs, the current liquidators having indicated that they are unwilling to accept the proposed funding on the ground that they do not accept that Melhelm is a creditor of the company.
Appointment beneficial to the winding up and the creditors as a whole 100 Mr Devine's evidence was that he and Mr Spring are of the view that their appointment to investigate and pursue the matters set out in the affidavits of Mr Davis and Mr Melhem would be beneficial to the general body of creditors. Mr Devine noted that, if they are appointed as SPLs, he and Mr Spring would not seek to recover fees and expenses out of the funds of property of the company other than in accordance with the terms of the proposed funding agreement; and otherwise out of assets of, or for the benefit of, the company that are recovered or obtained during the course of their appointment as SPLs. 101 On the evidence of Mr Cvitanovic, the company has no other resources once the present liquidators' expenses, legal costs and remuneration are paid. 102 On balance, I am satisfied that the proposed appointment (but on terms more limited than those proposed by the plaintiffs) is beneficial to the winding up and the creditors as a whole for the following reasons: (1) Contrary to the conclusion reached by the present liquidators, there is reason to believe that the company has a substantial third party creditor, being Melhelm. In those circumstances, it is my view that Melhelm's proof of debt should be re-adjudicated. (2) In those circumstances, the solvency of the company prior to the commencement of the winding up requires further investigation as does the possibility of voidable transactions, particularly the payment of $300,000 to Mr Franovic referred to above. 103 I am not presently satisfied that the investigations of the SPLs should extend to the other matters identified by the plaintiffs, particularly those matters that appear to be addressed by the investigations recorded in the 6 February 2019 report. 104 I accept that the appointment may involve a degree of duplication of the work done by the present liquidators to investigate recoveries. However, in my view that is not unreasonable where it is evident that the present liquidators' investigations were limited by their access to funding. 105 The liquidators submitted that the Court should not appoint the SPLs in the absence of any failure by them to carry out investigations or perform their duties, notwithstanding a want of funds. Having regard to the authorities set out above, I do not accept that a finding of a failure on the part of the liquidators is a pre-requisite to the appointment of the SPLs. 106 Without more evidence, I do not find that there was any failure on the part of the liquidators to faithfully perform their duties or any relevant non-compliance with the Act or the Insolvency Practice Rules (Corporations) 2016 (Cth). Even so, the liquidators' opposition in this proceeding, including by calling evidence from Mr Franovic, raises a legitimate basis to doubt that the liquidators could re-adjudicate Melhelm's proof of debt with due impartiality. This is a further reason why it is appropriate to appoint the SPLs for that purpose. 107 I do not accept the liquidators' complaint that the plaintiffs seek, by the appointment of the SPLs to reduce the incumbents' powers almost to nil or that the plaintiffs effectively seek the replacement of the incumbent liquidators. As earlier noted, Mr Cvitanovic's view is that the liquidation should now be concluded. The liquidators did not suggest that they ought now to be funded to do the proposed investigations, having previously been offered funding for that purpose.
Approval of funding agreement and retainer of solicitors 108 In In the matter of 77738930144 Pty Limited (in liq) (formerly Commercial Indemnity Pty Ltd) [2017] NSWSC 452, Gleeson JA considered whether a contributory seeking the appointment of an additional liquidator had standing to apply for approval of a related funding agreement and costs agreement. At [26], his Honour noted that ordinarily, the additional liquidator once appointed would make any relevant application for s 477(2B) approvals. That result could be and was achieved by a separate application by the proposed SPL returnable instanter in the proceeding in which he was appointed. 109 At [27], Gleeson JA noted that s 477(2B) does not specify who has standing to make an application for the approval contemplated by the section. Rather, it is a prohibition on the liquidator taking a particular step unless that approval has been obtained. 110 However, at [28], his Honour noted the potential for difficulties where the Court was asked to accept undertakings which were "merely foreshadowed in an affidavit made by the proposed additional liquidator but he or she is not present or represented before the Court" to give the relevant undertakings. 111 In this case, Mr Devine's evidence was to the effect that it was, in his opinion, in the best interests of the general body of creditors that he and Mr Spring enter into the funding agreement and retainer in respect of which the plaintiffs sought approval. Mr Devine stated the proposed preparedness of him and Mr Spring to give undertakings to the Court in accordance with his evidence set out at [94] above. However, it was not clear whether he had had the benefit of reading the February 2019 report to creditors and the orders that I will make are different and narrower from those which Mr Devine must have assumed in giving this evidence. 112 Accordingly, I will hear from the parties further before I made any orders approving the funding agreement and the retainer.
Conclusion 113 I will made orders reflecting the reasons set out above. 114 I will grant leave to the parties to approach my associate to obtain a hearing date for a further hearing in relation to the application for approval of the funding agreement and the retainer, and in relation to costs. I certify that the preceding one hundred and fourteen (114) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson.
Melhelm Pty Ltd, in the matter of Boka Beverages Pty Ltd (in liquidation)
Boka Beverages Pty Ltd