Mine & Quarry Equipment International Ltd v McIntosh [2005] QSC 59

[1] McMURDO J: This is an application for extensions of time in order to challenge decisions by a liquidator in relation to proofs of debt. The applications are opposed by the liquidator and by Ms JMB Robson, who was given leave to appear in circumstances to which I will return.

[2] The applicant is a company incorporated in Vanuatu and registered in Australia as a foreign company. Until July 1997 its sole director was Mr Gary Robson. Two companies were then appointed as directors in his place. In earlier proceedings involving this liquidation, in which the applicant unsuccessfully challenged a rejection of a proof of debt, it appeared to Atkinson J that Gary Robson was effectively the sole controller of the applicant.[1] The subject company carried on business as a repairer and broker of mining and quarry equipment until it was placed into liquidation on 10 July 2000. Its sole director was Gary Robson's brother who is Mr Bill Robson. Its members are Bill Robson and Bylass Pty Ltd, which is a company owned equally by Bill Robson and his wife.

[3] The respondent, Mr McIntosh, became the company's liquidator in January 2003, replacing Mr Clout. At the same time, Mr McIntosh replaced Mr Clout as liquidator of Yalgold Pty Ltd (in liquidation) ("Yalgold"). That is a landholding company whose shares are held by Bill Robson and his wife. The liquidations of the subject company and Yalgold appear to have resulted from a dispute between Gary and Bill Robson. The applicant conducted extensive business with the subject company and is its largest creditor. Gary Robson claims to be entitled to half of the shares in Yalgold and has commenced proceedings in that respect against Mr and Mrs Bill Robson.

[4] The assets of the subject company have been realised and only the various claims by the applicant are delaying the completion of its winding up. The company has cash of approximately $420,000.00. It has paid creditors interim dividends totalling $506,500.00. The total of the admitted but unpaid claims is $133,224.00. Apart from these further disputed claims by the applicant, unsecured creditors would be paid in full leaving a likely balance in excess of $280,000.00 to be distributed to Bill Robson and Bylass Pty Ltd as the company's members. Of the unpaid but admitted creditors of $133,224.00, the applicant is owed $105,701.00, Yalgold $19,853.00 and Gary Robson $6,104.00.

[5] The applicant wishes to belatedly appeal the liquidator's decisions in respect of three proofs of debt. The first of them was dated 4 September 2000. It included an amount of $627,954.46 which the liquidator admitted, and an amount of $634,975.60 for other items which was rejected in March 2001. The applicant submitted a second proof of debt dated 7 December 2000, which was also rejected in March 2001. The applicant appealed the liquidator's decision with respect to the first and second proofs of debt, but subsequently abandoned its appeal in relation to the second proof. The appeal against the decision to reject some of the first proof was heard by Atkinson J who dismissed it on 31 October 2001. The applicant filed a notice of appeal against that judgment but the appeal was subsequently dismissed by consent on the basis that the applicant paid the liquidator's costs. At that stage then, the liquidator had admitted that the applicant was a creditor in an amount of $627,954.46.

[6] By a report to creditors dated 10 April 2002, the liquidator announced his intention to pay an interim dividend. The applicant's unsuccessful challenge on the first proof of debt had to then delayed an interim dividend. There was then some further delay because the applicant sought information as to a proof of debt which had been lodged by Yalgold.

[7] On 3 June 2002, the liquidator advised the applicant's solicitors that he intended to set off an amount of $85,989.62 against that admitted amount of $627,954.46. The solicitors for the applicant disputed the liquidator's right to a set off, advancing both legal and factual grounds. As a person aggrieved by the decision to exercise the set off, the applicant was entitled to appeal against the decision pursuant to s 1321 of the Corporations Act 2001 (Cth). By rule 14.1(2) of the Corporations Law Rules,[2] the time limit for that appeal was 21 days from the decision or any further time allowed by the court. The first of the present applications is to extend the time for an appeal against that decision from 24 June 2002.

[8] The applicant delivered a third proof of debt which was dated 9 May 2003. This was preceded by a further notification by the liquidator of his intention to pay an interim dividend. This third proof was in an amount of $177,933.00, for items of equipment which were said to have been wrongly detained by the company. The liquidator rejected it by a letter dated 29 July 2003 and which informed the applicant that it would have 14 days within which to appeal that decision. Through the operation of reg 5.6.54 of the Corporations Regulations 2001 (Cth), that became the time for an appeal against that decision, unless time was extended by the court. The second of these applications is to extend the time within which to appeal the rejection of that proof of debt, pursuant to reg 5.6.54.

[9] A fourth proof of debt was submitted by the applicant, which is dated 23 February 2004 and is for an amount of $44,685.02. On 10 March 2004 the liquidator rejected it and specified a 14-day appeal period. On 22 March 2004, the solicitors for the applicant sought particulars of the liquidator's decision and an extension of time in which to appeal it. On 30 July, the liquidator gave a detailed explanation for his rejection of this fourth proof and extended the time for an appeal against his decision until 13 August. The third of the present applications is for an order extending the time for that appeal, again pursuant to reg 5.6.54.

[10] The applicant seeks an extension of time in which to appeal against the liquidator's setting off $85,989.62. However the applicant has already made an application to challenge the set off, albeit on limited grounds. That application was filed in August 2004 and heard on 2 September 2004. The relief sought was a declaration that the liquidator was not entitled to set off that sum or any part of it. On 8 November, Wilson J dismissed the application with costs.[3] Her Honour rejected the two arguments advanced for the applicant, the first of which was that the liquidator had not purported to exercise his power of amendment of a decision to admit a proof, so that his original decision stood and the amount admitted was unaffected by any set off. The second argument was that the liquidator was estopped from amending his decision, according to what was said to be the operation of the principle from Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45; (1980-81) 147 CLR 589. The applicant did not then challenge the set off upon the basis that all or some of the amount of $85,989.62 had not been owing by the applicant to the company, although such an argument would have been relevant to the relief which was claimed.

[11] The applicant has appealed against the judgment of Wilson J. The notice of appeal challenges the judgment upon the first of those arguments but not upon the second, the estoppel point. Consequently, the applicant now accepts that the liquidator is not estopped from amending his decision by exercising a right of set off, but argues that he is yet to do so. If the appeal is allowed, there is the prospect that the liquidator would then do whatever else is necessary to amend his original decision. In that case, the applicant would have a right of appeal against that new decision. It follows that a refusal of this application to extend time will not necessarily put paid to any further litigation concerning the set off. That is a relevant consideration but not a determinative one.

[12] As I have mentioned, the court's power to extend the time in which to challenge the set off decision comes from rule 14.1(2) of the Corporations Law Rules, whereas the power to extend time to challenge the rejection of the third and fourth proofs of debt comes from reg 5.6.54(2)(b) of the Corporations Regulations. In each case, the power is expressed simply and broadly as a power to allow further time. There is no material difference, at least in the context of this matter, between the respective powers. In Derwinto Pty Ltd (in liq) v Lewis [2002] NSWSC 731; (2002) 42 ACSR 645 at [47], Austin J accepted that the power under rule 14.1 should be exercised by a consideration of factors which Tamberlin J had identified as relevant to a challenge to a rejection of a proof of debt in a bankruptcy, in Re Estate of Knight (a bankrupt): Rocom International Pty Ltd (in liq) v Prentice [2002] FCA 604. I respectfully agree that the factors set out at [47] in the judgment of Austin J will be relevant in an application to extend time, whether made under rule 14.1 or reg 5.6.54. Austin J said that the principal factors might usefully be grouped under the headings:

(a) delay - including the length and nature of the delay, and the responsibility and reasons for it;

[13] Obviously, the extent of the applicant's delay varies between the decisions. On any view, its delay in challenging the set off decision and the rejection of its third proof of debt is in each case very extensive. But its delay in relation to the fourth proof of debt is still a matter of several months, which can be fairly described as extensive in the context of a time limit of 14 days.

[14] In no case is it said that the applicant or his advisors misunderstood the relevant time limit; nor was it the fault of the applicant's advisors that it failed to bring any of these appeals within time. The applicant seeks to explain the delay in each case by an absence of funds with which to mount a challenge by an appeal. In particular, it says that its funds were held up by an injunction granted in the Family Court until August 2004.

[15] The Family Court proceedings were brought against Gary Robson by his former wife, Ms Robson. She joined as respondents to the proceedings the subject company, the present applicant, Yalgold and Mr and Mrs Bill Robson. Ms Robson claimed relief whereby distributions from the liquidation of the subject company and Yalgold would be paid to her. She obtained interlocutory injunctions, in consequence of which the present respondent as liquidator of the company, paid monies into court in those proceedings. He paid an interim dividend due to the present applicant of $324,272.96 and the interim dividend due to Gary Robson of $25,197.56. The present applicant made several unsuccessful attempts in those proceedings to have all or some of that sum paid out to it. The Family Court proceedings were settled in July 2004, resulting in an order by which most of the money paid into court by the liquidator was released to the solicitors for the present applicant and Gary Robson. It is to be noted that within a few weeks of the release of those funds, the applicant filed the challenge to the set off which was dismissed by Wilson J.

[16] In the present application there is no evidence from Gary Robson. There are affidavits sworn by the applicant's solicitor to the effect that the applicant was unable to afford proceedings to challenge these three decisions until the funds had been paid out of the Family Court. That evidence is expressed in fairly general terms and it might have been preferable to have had evidence from someone with direct knowledge of the applicant's financial position. The applicant was able to retain its solicitors to engage in extensive correspondence with the liquidator over some years in respect of the various proofs of debt. The cost of that, however, would not approach the cost of the now proposed litigation. The applicant's solicitor was not cross-examined and ultimately I accept that at least the main reason for the delay until about August 2004 was the unavailability of funds. In the course of his submissions in reply, the applicant's counsel sought to tender an affidavit filed in the Family Court, as further evidence of the applicant's difficulties from the impact of the interlocutory orders in the Family Court. I reserved the question of whether I would allow that evidence to be tendered at that late stage. In view of my finding in the previous paragraph it is unnecessary to consider whether that further evidence should be admitted.

[17] One of the orders made by the Family Court disposing of the proceedings was that, of the money paid into court by the liquidator in favour of the present applicant, approximately $107,000.00 should be paid out of court to Ms Robson and the balance to the solicitors for the applicant and Gary Robson. The payment to the applicant would have provided ample funds for the now proposed challenge to these three decisions of the liquidator. Yet the applicant then challenged only the set off decision and even in that case, upon certain grounds.

[18] On 30 July 2004 the respondent gave a report to creditors in which he gave notice of a final dividend which he intended to distribute on 15 September 2004. On 13 August, the applicant's solicitors wrote to the liquidator's solicitors to advise that "we now have instructions to proceed with the Application in the Supreme Court to overturn your client's decision in relation to the set-off issue." The liquidator's solicitors replied on 16 August saying that the applicant was out of time for any further application and that the respondent still intended to pay a final dividend and to "finalise the administration". They added that "[a]ll of the delay by your client to date, together with any further delay, will be relied upon as one of the grounds to resist any claim by your client." On 23 August, the applicant's solicitors wrote to reject the contention that the applicant was out of time to bring any further applications and to advise that an application would be served the next day.

[19] The application which was dismissed by Wilson J was filed on 25 August. It was heard on 2 September and on 8 September the liquidator's solicitors said that the final dividend would be paid once that application had been decided. In the same letter the solicitors asked whether Gary Robson or the applicant maintained any of the other various claims they had made in the course of the winding up, saying that the liquidator considered that there were no outstanding issues apart from the set off matter. On 10 September the applicant's solicitors asked for advice as to the current assets and amounts remaining to creditors "[t]o assist our client in its deliberations in this matter". On 28 September the liquidator's solicitors said that the information sought was contained in the liquidator's affidavits filed in the Family Court proceedings and that the liquidator was "curious as to why your client requires this information to consider whether there are any outstanding issues to be dealt with in this liquidation." There was some further correspondence between the solicitors in which the applicant appears to have been pressing a case for an additional payment, beyond the matter of the set off.

[20] After the declaratory proceedings were dismissed, the applicant's solicitors wrote that the applicant intended to bring an application by an appeal against the liquidator's set off decision, but that if the liquidator objected to that proceeding being out of time, then the applicant would have no alternative but to appeal the decision of Wilson J. The applicant filed a notice of appeal against the judgment of Wilson J on 2 December and filed the present application on the following day.

[21] The unavailability of funds provides no explanation for why the present application was not filed at least four months earlier. It is partly explained by evidence from the applicant's solicitor that he and counsel advised the applicant that the liquidator "had not, as a matter of fact, made a decision to amend the admitted proof". But this does represent an example of what the liquidator's submissions described as a piecemeal approach by the applicant to this liquidation. Given the passage of more than two years since the relevant decision (to exercise a set off), in my view the applicant should have sought to appeal it (and brought this application) as soon as the release of its funds from the Family Court enabled it to do so.

[22] Further, in my view there is no satisfactory explanation for the applicant's delay after July 2004 in seeking to challenge the rejection of its third and fourth proofs of debt. The applicant's solicitors wrote on 13 August to take issue with the liquidator's reasons for rejection of the fourth proof but they were told on 26 August that the decision would not be reversed. At one point the applicant's solicitors did ask for a current statement of assets and liabilities in the winding up so as to enable the applicant to consider what further steps it would take. However, the applicant's solicitor's affidavit does not offer that explanation or any other for why the third and fourth proofs were not challenged.

[23] There will be some further delay if the applicant chooses to prosecute its appeal against the judgment of Wilson J. However that appeal could be heard and determined in less time than would be required for the determination of the proposed proceedings, especially with regard to the potential for appeals within them. Should the judgment of Wilson J be overturned, then there is the potential for further dispute and perhaps litigation concerning the set off. But that constitutes less than a third of the amount to be pursued within the proposed proceedings.

[24] The liquidator submits that there is relevant prejudice of three kinds. First there is the delay in the finalisation of the liquidation with the consequence that creditors and shareholders will be held of their money for much longer. Secondly, it is argued that the further delay and the necessary attendance by the liquidator to the proposed appeals will result in some costs to the winding up which could have been avoided had the applicant not approached the winding up in what is said to have been this piecemeal fashion. In that respect the liquidator submits that the applicant should have put all of its claims forward at once rather than by several proofs presented over several years. Thirdly it is submitted that the delay in finalisation of this liquidation will delay the finalisation of the liquidation of Yalgold.

[25] It was submitted on behalf of Ms Robson that she would be prejudiced by a delay in the finalisation of the winding up of this company and of Yalgold. Her interest in those liquidations comes from the order made by the Family Court last July. It was ordered that from a further distribution being made by the company in favour of the present applicant, the liquidator should pay to the solicitors for Ms Robson the first $31,000.00. It was further ordered that the respondent as the liquidator of Yalgold, should pay to her $388,000.00 from any distribution to the present applicant in that winding up. It is submitted that an extension of time to appeal these three decisions would delay the payment of a dividend from this winding up to Ms Robson, and because Yalgold is a creditor of the company, that it would also delay the payment of $388,000.00 in the winding up of Yalgold to Ms Robson.

[26] In my view, the delay from the proposed proceedings ought not to prejudice the orderly winding up of Yalgold or the interests of Ms Robson. Nor should it significantly disadvantage other creditors of the company. Apart from the applicant, Gary Robson or Yalgold, there are but three creditors of the subject company, who are owed in total about $1,500.00. Because there seems to be no prospect of a further claim from anyone other than the applicant, the liquidator ought to be able to make some further interim payment to creditors if he has to contest the proposed appeals. The only creditor significantly affected from a delay in the finalisation of this winding up would be the applicant itself. The liquidator would be able to pay most of the $19,853.00 owing to Yalgold.

[27] In the winding up of Yalgold there are admitted and unpaid claims totalling $397,330.00, of which all but $9,000.00 is payable to the present applicant. The liquidator holds cash of about $254,000.00. Yalgold owns real property the realisation of which will see both the secured and unsecured creditors paid out in full and a surplus available to the members, namely Mr and Mrs Bill Robson. Bill Robson is the secured creditor of Yalgold. The liquidator is considering a proposal from him to the effect that the real property would be transferred to him in consideration of his paying out all claims in the Yalgold liquidation including those of unsecured creditors. The applicant's admitted claim against Yalgold of $388,000.00 must be paid to Ms Robson pursuant to the order of the Family Court. If the presently proposed proceedings could substantially delay the payment of that dividend in the Yalgold liquidation, then this would represent a very substantial and relevant prejudice to Ms Robson as effectively the major unsecured creditor in that liquidation. However, I do not see that any delay in the completion of the winding up of the subject company should delay the payment of that dividend in the Yalgold liquidation. The relevance of this winding up to the Yalgold liquidation is by Yalgold being a creditor in this winding up. Its debt is but $19,853.00 and as there will be a substantial surplus in the Yalgold winding up, the payment of that debt should not delay the distributions to its creditors. As I see the matter, the proposed appeals ought not to substantially delay the payments to Ms Robson. A further interim dividend in the winding up of the subject company would still see her paid the $31,000.00 she is to receive from this winding up.

[28] The prejudice from the delay will be to Bill Robson and Bylass Pty Ltd as the shareholders of the company. They are the parties who together with the applicant have a real interest in the outcome of the proposed proceedings. Absent these proceedings they would receive approximately $280,000.00, and without further delay.

[29] There is no evidence demonstrating any particular merit of any of the proposed appeals. I cannot conclude that any of the appeals are hopeless. On the other hand, the applicant has not attempted to demonstrate that its prospects are strong: it has simply exhibited the relevant proofs of debt. No one has sworn to the correctness of the claims. In the proposed proceeding the applicant would have to prove its various claims including in the case of the set off where it must establish that the liquidator's decision was wrong. I do not suggest that in every case where an extension of time is sought in this context, an applicant must demonstrate a prima facie case or at least a serious case to be tried. But because the liquidator has given reasons for his decisions, the absence of any evidence which is probative of any error by the liquidator is an important consideration, particularly where the applicant has demonstrated some disinclination to challenge the decisions, except on a narrow basis in relation to one of them.

[30] I am unpersuaded that time should be extended for any of these proposed appeals. The applicant's delay even between July and the filing of this application was very extensive in the context of the short time limits which operate in a company's liquidation. It is a far more serious delay for the fact that so much time had already passed in relation to two of these decisions before the applicant obtained funds in July 2004. And having regard to the two years which had passed since the set off decision, it was incumbent upon the applicant to then seek to advance all of its grounds for challenging that decision. The proposed proceedings will further delay the completion of this winding up with a consequent effect on the members.

[31] The application filed on 3 December 2004 is dismissed. I shall hear the parties as to costs.

[1] [2001] QSC 412 at [7].

[2] As applied to proceedings in this court pursuant to rule 995 of the Uniform Civil Procedure Rules 1999 (Qld).

[3] [2004] QSC 402.