Metledge v Bambakit Pty Ltd; Manuel Koutsourais, Applicant

Supreme Court of NSW|2005-03-11|Before: Barrett J, Mr P

CITATION : Metledge v Bambakit Pty Ltd; Manuel Koutsourais, Applicant [2005] NSWSC 160

Equity Division JURISDICTION : Corporations List

DECISION : Interlocutory process dismissed with costs

LEGISLATION CITED : Corporations Act 2001 (Cth), s.482

Commonwealth Bank of Australia v Begonia (1993) 11 ACLC 477 Deputy Commissioner of Taxation v Lencal Excavations Pty Ltd [2004] NSWSC 783 Deputy Commissioner of Taxation v Sydney Concrete Steel Fixing Pty Ltd (1999) 17 ACLC 972 Dubolo Pty Ltd v Codrington Investment Corporation Pty Ltd (1998) 26 ACSR 723 Expile Pty Ltd v Jabb's Excavations Pty Ltd (2003) 45 ACSR 711 Koutsourais v Metledge & Associates [2004] NSWCA 313 Re Calgary & Edmonton Land Co Ltd [1975] 1 WLR 355 CASES CITED : Re Data Homes Pty Ltd [1971] 1 NSWLR 338 Re Denistone Real Estate Pty Ltd [1970] 3 NSWR 327 Re Mascot Home Furnishers Pty Ltd [1970] VR 593 Re Nature Springs Pty Ltd (1994) 13 ACSR 50 Re Skay Fashions Pty Ltd (1986) 10 ACLR 743 Re Warbler Pty Ltd (1982) 6 ACLR 526 Sutherland v Rahme Enterprises Pty Ltd (2003) 46 ACSR 458

Mary Metledge - Plaintiff Bambakit Pty Limited (In Liquidation) - Defendant Manuel Koutsourais - Applicant PARTIES : Max Christopher Donnelly - Respondent

Mr A. Blank - Plaintiff COUNSEL : Mr P.J. Duggan, Solicitor - Liquidator for Defendant and Respondent Mr T.D. Tzovaras - Applicant

M.R. Barber & Associates - Plaintiff SOLICITORS : Peter Duggan & Associates - Liquidator for Defendant and Respondent Tzovaras Legal - Applicant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

4915/03 - MARY METLEDGE T/AS METLEDGE & ASSOCIATES v BAMBAKIT PTY LTD - MANUEL KOUTSOURAIS, APPLICANT JUDGMENT 1 On 17 March 2004, this court made an order that Bambakit Pty Ltd ("Bambakit") be wound up in insolvency. It was ordered that Mr Donnelly be appointed liquidator. The winding up followed failure to satisfy a statutory demand in respect of a judgment debt. The applicant for winding up was Ms Metledge, a solicitor. The debt was for sums she alleged to be due to her for legal services provided. 2 The sole director of Bambakit has been, at all material times, Mr Manuel Koutsourais. He is also one of the two shareholders. The other shareholder is an accountant, Mr Kristallis, who is said to hold shares in trust for members of Mr Koutsourais' family. It appears that Bambakit was essentially a property owning company. It owned premises in Princes Highway Rockdale that were occupied by Mr Koutsourais for the purpose of conducting a smash repairs business. He appears to have carried on that business as a sole trader under the name "Rockdale Smash Repairs" or "Rockdale Smash Repairs and Towing Services". 3 By an interlocutory process filed on 17 June 2004, Mr Koutsourais, as a contributory, made an application under s.482 of the Corporations Act 2001 (Cth) for an order terminating the winding up of Bambakit. That application came on for hearing before me more than eight months later, that is to say, on 21 February 2005. In the meantime, the matter had been before the court on several occasions for directions. 4 On the hearing of the application for an order terminating the winding up, Mr Koutsourais, the applicant, was represented by Mr Tzovaras, solicitor. Mr Duggan, solicitor, appeared for the liquidator who neither consented to nor opposed the application but, at the same time, placed before the court on the liquidator's behalf certain matters relevant to the exercise of the s.482 jurisdiction. Mr Blank of counsel appeared for Ms Metledge, upon whose application the winding up order had been made. Ms Metledge opposed the making of any order under s.482. She, like the liquidator, placed before the court matters relevant to the exercise of the s.482 jurisdiction. 5 The jurisdiction to terminate a winding up under s.482 is discretionary. The court may have regard to a range of factors. While not to be rigidly applied (Dubolo Pty Ltd v Codrington Investment Corporation Pty Ltd (1998) 26 ACSR 723), the list of criteria set out in the judgment of Master Lee QC in Re Warbler Pty Ltd (1982) 6 ACLR 526 provides useful guidance: "1. The granting of a stay is a discretionary matter, and there is a clear onus on the applicant to make out a positive case for a stay: In Re: Calgary and Edmonton Land Co Ltd (In liq) (1975) 1 WLR 355 at pp 358-359 per Megarry J. See also sec. 243 of the Act [i.e, Companies Act 1961]. 2. There must be service of notice of the application for a stay on all creditors and contributories, and proof of this; Re South Barrule Slate Quarry Co (1869) 8 Eq 688; Re Bank of Queensland Ltd (1870) 2 QSCR 113. 3. The nature and extent of the creditors must be shown, and whether or not all debts have been or will be discharged: Krextile Holdings Pty Ltd v Widdows (supra) [[1974] VR 689]; Re Data Homes Pty Ltd (supra) [1971] 1 NSWLR 338], Law of Company Liquidation (supra) at p 395. 4. The attitude of creditors, contributories and the liquidator is a relevant consideration: sec. 243(1), Calgary and Edmonton Land Co Ltd (supra). 5. The current trading position and general solvency of the company should be demonstrated. Solvency is of significance when a stay of proceedings in the winding-up is sought: In re a Private Company (1935) NZLR 120; Re Mascot Home Furnishers Pty Ltd (1970) VR 593 at p 598. 6. If there has been non-compliance by directors with their statutory duties as to the giving of information or furnishing a statement of affairs, a full explanation of the reasons and circumstances should be given: Re Telescriptor Syndicate Ltd (supra) [[1903] 2 Ch 174]. 7. The general background and circumstances which led to the winding-up order should be explained: Krextile Holdings Pty Ltd v Widdows (supra). 8. The nature of the business carried on by the company should be demonstrated, and whether or not the conduct of the company was in any way contrary to 'commercial morality' or the 'public interest': Krextile Holdings Pty Ltd v Widdows (supra)." 6 Ms Metledge's opposition to the making of an order under s.482 is based on the proposition that considerations of public interest and commercial morality indicate that Bambakit would be in unsafe hands and subject to genuine jeopardy if control of it at director level were restored to Mr Koutsourais. In taking that line, Ms Metledge refers to matters that were also the subject of submissions made on behalf of the liquidator. 7 It is necessary to refer to events after the making of the winding up order on 17 March 2004. The following day, 18 March 2004, the liquidator wrote to Mr Koutsourais informing him of the orders of the court and enclosing a number of documents. The letter conveyed a requirement by the liquidator that Mr Koutsourais attend at the liquidator's office to give information about Bambakit and its affairs. It was stated that Mr Koutsourais should bring all Bambakit's books, records and documents with him. Attention was also drawn to the legal obligation to prepare and submit a report as to affairs. There was also reference to a particular requirement of taxation legislation with respect to GST. 8 On 19 March 2004, the liquidator wrote to Mr Tzovaras' firm, Tzovaras Legal, stating his understanding that that firm acted for Bambakit and asking for a statement of matters in which current instructions were held, whether the firm held any records or documents belonging to Bambakit and whether any moneys were held to its account. 9 On 24 March 2004, Tzovaras Legal wrote to the liquidator. They said that they had instructions (presumably from Mr Koutsourais) to appeal against the decision to make the winding up order and, to that end, to seek leave under s.471A to enable Mr Koutsourais to exercise his powers as director accordingly. Also foreshadowed was an application for "a stay of the proceedings and enforcement process pursuant to section 471B of the Corporations Act 2001" - a description which, in the context, makes no sense. On the same day, the liquidator replied to Tzovaras Legal. The letter in effect asked whether what Mr Koutsourais really intended doing was to make an application under s.482. 10 On 5 April 2004, the liquidator wrote to Mr Koutsourais noting that no report as to affairs had been received and pointing out that, as he was aware, it had been required by 1 April 2004. Attention was drawn to the penalty for default. The liquidator also noted that he had not received the books, records and documents of Bambakit. Again, he drew attention to the penalty for default. A demand was made for the provision of all outstanding items by 8 April 2004, failing which the liquidator would report Mr Koutsourais to the Australian Securities and Investments Commission. 11 Also on 5 April 2004, the liquidator wrote to Tzovaras Legal reiterating the requests in his letter of 19 March 2004 to which there had been no reply. He also asked for information about the application to the court previously foreshadowed by Tzovaras Legal, at the same time making it clear that he would be taking steps to realise assets. 12 On 8 April 2004, Tzovaras Legal wrote to the liquidator saying that they would be making an application under s.482 and would "also be seeking a stay of the proceedings". An application to the Duty Judge on 14 April 2004 was foreshadowed. 13 On 13 April 2004, the liquidator wrote to Tzovaras Legal saying that he had received neither any application under s.482 nor any supporting affidavit. By a letter dated 14 April 2004 to Tzovaras Legal, the liquidator requested that there be placed before the court with the foreshadowed application a summary of the liquidator's remuneration and expenses to date. The liquidator also pointed out that Mr Koutsourais had defaulted in furnishing a report as to affairs and in handing over the books, records and documents of Bambakit to the liquidator and that these matters would be reported to ASIC. By a subsequent letter of 14 April 2004, the liquidator provided updated information as to costs of the winding up. The foreshadowed application did not materialise on 14 April 2004. 14 On 19 April 2004, Mr Duggan's firm, Duggan & Associates, wrote on the liquidator's behalf to Tzovaras Legal. After reciting background, the letter said: "Your client's lack of co-operation has hindered and is continuing to hinder our client's investigation into the affairs of the Company. In particular, our client is unable to come to any view as to the insolvency of the Company without access to the documents and records referred to above. Our client is very concerned also that the building erected on the land at Rockdale owned by the Company is in a dilapidated condition and could cause injury. Our client requires your client's immediate response regarding the following matters:- (a) when the following documents and records will be received by our client;- (i) report as to affairs; (ii) books and records of the Company; and (iii) director's questionnaire forwarded to your client; and (b) what, if any, application your client intends to make to the Court to seek a stay or termination of the winding up, and when any such application will be made." 15 On 27 April 2004, the liquidator wrote to ASIC enclosing a statement of his attempts to obtain a report as to affairs and the company's books and records. ASIC responded on 30 April 2004 saying that a letter requesting compliance had been sent by it to Mr Koutsourais. 16 On 27 April 2004, the liquidator also wrote to Mr Koutsourais informing him that the liquidator had reported him to ASIC pursuant to ss.475 and 530A of the Corporations Act for failure to deliver required documents to the liquidator and that he intended to place Bambakit's real property at Rockdale in the hands of agents for sale. By letter dated 10 May 2004 to the liquidator, Tzovaras Legal asked for "an extension of 21 days for the preparation of the Company's records and affairs". By letter dated 11 May 2004, the liquidator agreed to an extension until 21 May 2004 for furnishing of a report as to affairs and delivery of the company's books, records and documents. 17 A report as to affairs was eventually furnished by Mr Koutsourais on 26 May 2004. Then or subsequently, some books and records were furnished by Mr Koutsourais to the liquidator. 18 On 1 June 2004, Tzovaras Legal wrote to the liquidator as follows: "Further to the above matter could you please provide a written estimate of the following: 1. Creditors; 2. Liquidators costs and disbursements (including cancellation of auction); 3. Provision for legal costs of creditors petition; 4. Any other costs or disbursements. We have advised Mr Koutsourais of his obligations to cooperate with you regarding proof of payments. Mr Koutsourais will provide you with proof of payment of the company's water rates, council rates, taxation liabilities and any other payment that you require on an urgent basis. We are instructed to seek an Order from the court to terminate the liquidation and we are arranging for sufficient funds to be deposited into our trust account. We note that you have had some difficulties with Mr Koutsourais. After a lengthy discussion with him, it appears that he did not understand his obligations and due to his limited education, many of the terms legal and business terms used were foreign to him. You are aware that the Company does not have a bank account and Mr Koutsourais pays all of the Company's expenses. We have instructed Mr Koutsourais to bring the mortgage up to date. Mr Koutsourais has been operating his business from the Company's property for many years. He will suffer enormous loss and damage if the premises are sold and he is required to vacate and move his business. We have strongly advised Mr Koutsourais that he must pay all costs required by the liquidator and he has agreed to do same. We request your cooperation in advising us what you require to either obtain your consent or your non-objection to the termination of the liquidation. We look forward to your urgent reply." 19 On 10 June 2004, Tzovaras Legal wrote to the liquidator seeking to negotiate a deferral of a proposed auction of the Rockdale property. The liquidator's solicitors conveyed, by letter dated 11 June 2004, rejection of the proposal for deferral, reiterated previous complaints about Mr Koutsourais' conduct and added: · "Your client has obstructed our client's estate agent in the fulfilment of the agent's duties in marketing the Rockdale property"; and · "largely a result of your client's lack of co-operation, our client has been unable to determine with any degree of certainty the extent of the company's debts." 20 Mr Koutsourais has not referred in his affidavit to the fact that, on the evening of 11 June 2004, Mr Tzovaras appeared before me, as Duty Judge, and made an urgent ex parte application for an injunction restraining the sale of the Rockdale property by the liquidator. The application was refused. Such was the urgency with which it was brought that the application was made orally. The s.482 application was foreshadowed at that time. The short judgment I delivered concluded as follows: "I note the undertakings given by Mr Koutsouris through Mr Tzovaras, his solicitor, to file an interlocutory process seeking the s.482 order and, as a matter of form, to file a separate interlocutory process in respect of the oral application with which I have just dealt." 21 A particular aspect of the liquidator's inability to ascertain the true state of Bambakit's finances is illustrated by correspondence about a supposed receivable of $105,160 apparently noted in financial statements for the years ended 30 June 2002 and 30 June 2003. By letter dated 14 October 2004 to Mr Koutsourais, the liquidator sought confirmation and substantiation in relation to this alleged asset. Tzovaras Legal replied on 22 October 2004 giving information which did not address the questions asked. Meanwhile, Mr Kristallis, the accountant, had informed the liquidator (and confirmed by letter dated 1 November 2004) that the sum concerned was owed by Mr Koutsourais himself, although making it clear that Mr Koutsourais himself was the source of that information. The liquidator then wrote again to Mr Koutsourais seeking confirmation of this and asking why the asset had not been included in the report as to affairs. A reply by Tzovaras Legal dated 17 November 2004 did not answer those questions, apart from saying that because of "his lack of knowledge and experience" Mr Koutsourais "was not aware that he was required to note himself as a creditor of the company given that he was a director of Bambakit and that ultimately it was all part of his money". 22 Another example of the liquidator's difficulties in obtaining information concerns Bambakit's bank account. In their letter of 1 June 2004 to the liquidator (already mentioned), Tzovaras Legal said: "You are aware that the Company does not have a bank account and Mr Koutsourais pays all of the Company's expenses".

Yet ten days later, on 11 June 2004, Tzovaras Legal wrote to the liquidator: "We are instructed that our client does not hold any cheque books and accounts of the company, other than a bank account held in the name of Bambakit, which was recently obtained through the National Australia Bank." 23 The Tzovaras Legal letter of 22 October 2004 to the liquidator enclosed copies of two bank statements relating to a Business Management Account with the National Australia Bank styled "Bambakit Pty Ltd TAS Rockdale Smash Repairs Commercial Mortgage Overdraft". Those statements covered the periods 11 November 2003 to 27 February 2004 and 28 February 2004 to 31 March 2004. They showed an increase in debit balance over that period from $3,750.00 to $91,643.88. Tzovaras Legal's letter says: "You will note that under the heading Account Details, reference is made to Bambakit Pty Limited t/as Rockdale Smash Repairs. This is incorrect and should in fact read Manuel Koutsourais t/as Rockdale Repairs and Towing Services." 24 The evidence shows that Mr Koutsourais does not recognise any line of demarcation between the affairs of Bambakit and those of himself. That is made clear by the Tzovaras Legal letter of 17 November 2004 quoted in part above. The statement by Tzovaras Legal in their letter of 22 October 2004 that the National Australia Bank account clearly shown on the bank statement as an account of Bambakit was really an account of Mr Koutsourais is unexplained. Things do not change their complexion just because solicitors say they are "incorrect". The Tzovaras Legal letter of 1 June 2004 said that Mr Koutsourais "pays all of the Company's expenses". This is elaborated in Mr Koutsourais' affidavit: "Rockdale Smash Repairs paid for the renovations made to the property and also the legal fees incurred by Bambakit. As Bambakit was not a trading company it did not have income to pay all the legal fees and renovation costs relating to the property and the business. As soon as invoices payable by the company came to my attention, I would arrange payment from my own personal funds, which included income from the business."

The affidavit also says: "I always considered Bambakit and the property as being held in trust for my family."

I put it to Mr Tzovaras in the course of the hearing that Mr Koutsourais failed to see the difference between the company and himself, a proposition that Mr Tzovaras said he thought must be accepted. 25 I have referred already to the report given by the liquidator to ASIC concerning Mr Koutsourais' failure to comply with his obligations with respect to a report as to affairs and delivery of books and records to the liquidators. Based on that report, ASIC initiated a prosecution. On 17 August 2004, Mr Koutsourais pleaded not guilty to charges of failure to comply with ss.475 and 530A of the Corporations Act. On 12 October 2004, the charge under s.475 was dismissed and Mr Koutsourais was convicted of the charge under s.530A, fined $400 and ordered to pay costs. Two days later, on 14 October 2004, the liquidator wrote a letter to which I have already referred. It asked further questions of Mr Koutsourais about the affairs of Bambakit. As I have previously said, the reply from Tzovaras Legal dated 22 October 2004 did not address the questions asked. 26 I next mention the present status of the judgment debt which formed the bases of the statutory demand which, in turn, grounded Ms Metledge's application that Bambakit be wound up. The judgment was a Local Court judgment for solicitor-client legal costs. There was an appeal from the Local Court to a Master of this court, then to a Judge of this court and eventually to the Court of Appeal where, by majority (Beazley and Hodgson JJA, Bryson JA dissenting: Koutsourais v Metledge & Associates [2004] NSWCA 313, 23 November 2004), the Local Court judgment was set aside. Ms Metledge has made an application for special leave to appeal to the High Court. That application is pending. In mentioning these matters, I do not intend to suggest that the winding up order was somehow irregularly obtained. It is clear that it was regularly obtained. The significance of the events I have described is that they contribute to uncertainty about the financial position of Bambakit. 27 Gross uncertainty about the financial position of Bambakit lies at the heart of the present application. Written submissions handed up by Mr Tzovaras venture to suggest that Bambakit is solvent. They refer to cash at bank of $123,637.67 at 15 February 2005 as stated in a report of the liquidator for the period 17 March 2004 to 15 February 2005 and go on to say that provision needs to be made for the liquidator's further fees and expenses and "the two remaining on secured [sic; scil: "unsecured"] creditors". The former is taken into account at $15,000 and the latter at $4,850, with the result that, according to those submissions: "As the Company has no other liabilities, its net assets would in [sic] excess of $100,000 and, therefore, the Company is solvent." 28 These submissions reflect statements made by Mr Koutsourais in his affidavit of 18 February 2005. They are, however, not borne out by the evidence of the liquidator. In his affidavit of 17 September 2004, the liquidator deposed that he had been unable to carry out a proper investigation of the affairs of Bambakit because he had not been able to inspect Bambakit's books and records. The only material he has received since then is referred to in his affidavit of 8 December 2004. It concerns the supposed receivable of $105,160 (or, as I shall mention in a moment, some smaller amount) and the National Australia Bank account showing a debit balance of no less than $91,643.88. Questions about those matters were raised on 4 November 2004. The Tzovaras Legal letter of 17 November 2004 did not answer those questions in any meaningful way. 29 If, as Mr Koutsourais says, he (being the proprietor of Rockdale Smash Repairs) paid all the expenses of Bambakit, that presumably caused him to become a creditor of Bambakit or to enjoy a reduction in any indebtedness owed by it to him. The evidence shows nothing about the state of the financial account as between Bambakit and Mr Koutsourais, beyond the possible debt of $105,160 owing by Mr Koutsourais to Bambakit, and Mr Kristallis's statement (said in his letter of 1 November 2004 to be based on information given by Mr Koutsourais) that "a substantial amount" had been paid by Mr Koutsourais for Bambakit "against the $105,160". There is no hint of what the "substantial amount" may be: the best Mr Kristallis could do was to make reference to Mr Koutsourais as a possible source of further information. 30 If Bambakit is, in reality indebted to Mr Koutsourais (something with respect to which the evidence allows no reliable conclusion to be drawn), it would not be to the point to say that the indebtedness was merely "in-house". Debt of that kind remains a factor in determining solvency. Nor would it be to the point to say that Mr Koutsourais would never sue or even that he was prepared to consent to some contractual subordination of his debt: Re Nature Springs Pty Ltd (1994) 13 ACSR 50; Sutherland v Rahme Enterprises Pty Ltd (2003) 46 ACSR 458; Deputy Commissioner of Taxation v Lencal Excavations Pty Ltd [2004] NSWSC 783. This aspect of the financial affairs of Bambakit is not explained. 31 In any application under s.482 for an order terminating winding up, the onus is on the applicant to make out a positive case for termination: Re Calgary & Edmonton Land Co Ltd [1975] 1 WLR 355 at pp.358-9. Where the ground for winding up was insolvency, an indispensable part of the applicant's task is to prove solvency. As a matter of public policy or commercial morality, the court will not countenance the return of an insolvent company to the mainstream of commercial life: see, for example, Re Mascot Home Furnishers Pty Ltd [1970] VR 593; Re Denistone Real Estate Pty Ltd [1970] 3 NSWR 327; Re Data Homes Pty Ltd [1971] 1 NSWLR 338. Upon an application of the present kind, as in the case of defence to a winding up summons where the presumption of insolvency operates, the party bearing the onus of proof must lead the "fullest and best" evidence of the financial position: Commonwealth Bank of Australia v Begonia (1993) 11 ACLC 477. And as was pointed out in Expile Pty Ltd v Jabb's Excavations Pty Ltd (2003) 45 ACSR 711 by Santow JA (with whom Meagher and Handley JJA agreed), "proper verification of assets and liabilities is critical to rebut the presumption of insolvency". 32 The material Mr Tzovaras placed before the court on behalf of Mr Koutsourais fails to discharge the onus of proof that Mr Koutsourais bears. There is some basis for the submission as to quantum of cash at bank at 15 February 2005. That appears from a report of the liquidator. But no basis is shown for the assertion that unsecured creditors total only $4,850. The liquidator has expressed no opinion on the quantum of liabilities. The simple fact is that he is unable to do so. In a letter to ASIC dated 5 August 2004, the liquidator said: "Additionally I note that I have been in continual contact with the Director, however I have not received sufficient books and records from Mr Koutsourais. As such I have been unable to undertake my investigations into the Company's affairs or identify the quantum and number of creditors."

That remains the position from the liquidator's perspective. 33 Mere assertions by a company's controller as to its solvency and the state of its assets and liabilities are of no real value to the court: see Expile Pty Ltd v Jabb's Excavations Pty Ltd (above). Upon applications such as the present, the court will not act on unsubstantiated evidence of such a person: Deputy Commissioner of Taxation v Sydney Concrete Steel Fixing Pty Ltd (1999) 17 ACLC 972. The relevant observation of Austin J in the latter case was quoted by White J in Deputy Commissioner of Taxation v Lencal Excavations Pty Ltd (above): "[23] Finally, there is a question as to whether I should be satisfied as to the description of the financial position of the company based upon the evidence of Mr Johnston and the support it has to some extent in the affidavit of the liquidator. In Deputy Commissioner of Taxation v Sydney Concrete Steel Fixing Pty Ltd (1999) 17 ACLC 972 Austin J said 973: 'It seems to me that an application which relies only on evidence deposed to by a single director-shareholder without any external confirmation is unlikely to be adequate to persuade a Court to exercise the discretion conferred by 482(1)...' [24] That quotation has particular point in this case where, on his own evidence, the applicant apparently forgot a debt of over $30,000 owed to the Australian Tax Office for over six months and later a debt owed to it of over $40,000. That does not engender confidence in his assessment of the assets and liabilities of the company. To some extent his evidence is corroborated by the liquidator. However, the liquidator says that he has only undertaken very limited investigations into the affairs of the defendant. Before I could act on the liquidator's evidence I would need to know what investigations the liquidator has made so as to understand the basis upon which he has satisfied himself of the accuracy of the Report as to Affairs. [25] There is another possibility which may provide additional support to the liquidator's evidence, namely, for there to be evidence from the external accountant, Mr Holliday, as to the company's financial position." 34 White J here refers to the two approaches generally taken to proof of solvency. Sometimes, the liquidator can verify financial facts sufficiently to express an opinion that the company is solvent or, at least, to put before the court critically assessed information which assists it in coming to such a conclusion. Sometimes an external accountant can do these things. The court is receptive to that kind of evidence, provided that it sufficiently demonstrates the basis for the opinion that the company is solvent and reflects investigations and verification beyond the mere say-so of the company's controller. No such evidence has been led here. 35 This leads me to another aspect of the "commercial morality" issue. The evidence makes it clear that Mr Koutsourais never made any real attempt to deal conscientiously with the responsibilities that accrued to him by reason of the making of the winding up order. The liquidator's early requests for information and for the furnishing of a report as to affairs were at first met with the response that there was to be an application under s.471A so that an appeal against the making of the winding up order might be pursued (also that there was to be some form of application under s.471B). Further requests by the liquidator met with the response that there was to be an application under s.482. A report as to affairs was eventually furnished by Mr Koutsourais on 26 May 2004, that is, ten weeks after the making of the winding up order. Some books and records were handed over but were insufficient to provide any clear picture of Bambakit's position. Mr Koutsourais' attitude was to regard the winding up as something that was negotiable. The Tzovaras Legal letter to the liquidator dated 1 June 2004 proceeded on that basis. After asking for information that Mr Koutsourais himself should have had and attempting to gloss over serious derelictions on Mr Koutsourais' part, the letter concluded: "We request your cooperation in advising us what you require to either obtain your consent or your non-objection to the termination of the liquidation." 36 Correspondence later in June 2004 had the flavour of the kind of negotiations a mortgagor wishing to obtain time to redeem would seek to conduct with a mortgagee threatening to exercise the power of sale. Mr Koutsourais did not accept that the liquidator installed by order of the court deserved co-operation and information and was by law entitled to them. 37 It is likely that Bambakit never kept adequate books and records. The prospects of Mr Koutsourais' somehow creating and maintaining appropriate records upon any termination of the winding up is remote. He has shown himself to be unconcerned about the responsibilities that attach to the office of company director - so much so that, even under threat of prosecution, he did not do what was required of him. The possibility that the affairs of a company released from winding up might be conducted "in the same sloppy fashion" as previously is a factor that may be taken into account in a case such as this: Re Skay Fashions Pty Ltd (1986) 10 ACLR 743 at p.746. I interpolate here that, according to evidence adduced by Ms Metledge, Mr Koutsourais continues to demonstrate commercially "sloppy" behaviour by carrying on his smash repairs business under a name other than his own even though the registration of that name under the Business Names Act 1962 expired in 1998. 38 It was suggested by Mr Tzovaras from the bar table that, as a condition of any s.482 order, Mr Koutsourais might proffer to the court an undertaking to resign as a director and not to take part in the management of Bambakit, on the basis that his wife would take over those roles. Potential problems with any such undertaking were briefly discussed in the course of the hearing. After judgment had been reserved, Mr Tzovaras, with the concurrence of Mr Duggan and Mr Blank, communicated through my Associate the willingness of Mr Koutsourais to see any order for termination of the winding up made subject to two conditions, namely: "1. that Mr Koutsourais resign as a director and appoint any one or more of his wife Dianne Koutsourais and his children Michael Koutsourias and Andrea Koutsourais, as directors of Bambikit Pty Limited; and 2. that Mr Koutsourais provide an undertaking to the Court that he will not consent or allow himself to be appointed or otherwise act as a director of Bambakit, unless or until he completes satisfactorily an appropriate course on the duties and responsibilities of directors provided by the Australian Institute of Company Directors or any other appropriate professional business or educational institution." 39 Section 482 does not contemplate conditional orders, although s.482(3) empowers the court to give directions for "the resumption of the management and control of the company by its officers". A direction to the effect of the conditions to which Mr Koutsourais is prepared to submit might come within this specification. But the problem is that, in the case of a closely held company of this kind, there would be no reliable means of knowing whether the directions or conditions had been observed, particularly in light of the close family relationships involved and the concept of de facto directors. 40 The prospect of management of Bambakit being restored either directly or more remotely to someone who, on his own admission, does not appreciate the difference between his own affairs and interests and those of the company, who has been responsible for a failure to maintain proper corporate books and records and who refused to face up to the responsibilities owed by him to the liquidator even after threatened with prosecution and subsequently convicted is something that consolidates the view, based on failure to prove solvency, that no s.482 order should be made and the application should be dismissed with costs. 41 The orders of the court are:

Order that the interlocutory process filed on 17 June 2004 be dismissed. 2. Order that the applicant pay the costs of the respondent liquidator and of the plaintiff of and incidental to the interlocutory process. **********

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At a glance

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Judgment (16 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (2)