Olsen v Nodcad [1999] NSWSC 364 | Case summary

JUDGMENT 1 These proceedings were commenced by summons filed on 15 November 1996 in which the plaintiffs sought to establish that they were beneficially entitled to money held by the third defendant, MLC Investments Limited. The case subsequently proceeded by way of a statement of claim, from which it appeared that the plaintiffs claimed that they had paid money to the first defendant, Nodcad Pty Ltd ('Nodcad'), for Nodcad to issue them redeemable preference shares, in reliance on a misleading prospectus and other misleading representations. According to the plaintiffs' allegations, the shares were not issued and they subsequently withdrew their application for shares, with the result that they were entitled to reimbursement of the subscription money. The plaintiffs also made claims based on breach of fiduciary duty, unconscionable conduct, constructive trust and breach of various provisions of the Trade Practices Act and the Fair Trading Act. The statement of claim also made claims against the second defendant, Mr Basto, who was a director of the first defendant, essentially for knowing involvement in the Nodcad's wrongdoing. Nodcad and Mr Basto filed a defence to the statement of claim. 2 On 21 February 1997 the trustees of three superannuation funds, namely the Richard William Fennell Superannuation Fund, the Mears Industries Superannuation Fund and the Cuthbert Superannuation Fund, filed a cross-claim against Nodcad, Mr Basto and MLC Investments Limited in the proceedings. The cross-claim made allegations broadly similar to the allegations in the plaintiffs' amended statement of claim, referring to several prospectuses alleged to have been issued by Nodcad. However, the cross-claim departed from the statement of claim by including in the prayers for relief a claim that Nodcad be wound up by the court on the 'just and equitable' ground (Corporations Law, s 461(k)). 3 According to the evidence before me, Andrew Hugh Jenner Wily was appointed administrator of Nodcad by resolution of the company's directors on 2 July 1997. 4 The parties to the proceedings, other than Mr Basto, reached agreement as to the orders which they regarded as appropriate in the proceedings. On 14 July 1997 Hodgson J made orders by the consent of those parties. The orders included orders for the winding up of Nodcad and the appointment of Mr Wily and his father as joint liquidators. Subsequently Mr Wily Snr was removed as a liquidator upon his retirement. 5 In his short reasons for making the orders, Hodgson J commented on the winding up order as follows: 'The third matter is whether there should be an immediate winding up order. It was suggested this morning by Mr Basto that the company had claims against other people which were such that all creditors of the company could be paid in full. However, it seems clear that even if this was so, it in no way negatives the plain existing insolvency of the company; and in circumstances where the administrator seeks an immediate order for winding up, I think it is appropriate to make that order as agreed by the parties.' I infer from these remarks that his Honour made the order under s 459B, which applies where an application to wind up the company is made under s 461 (as it was here) and the court is satisfied that the company is insolvent. 6 The matter has come before me now, after the expiry of so much time, because of some notices of motion filed in the proceedings. On 10 June 1998 an application was filed by notice of motion to recover a payment of $69,850 from Robert George Moore trading as Robert Moore & Associates, as an unfair preference under ss 588FA and 588FE of the Corporations Law. (I assume that the correct figure is $69,850 because that is the amount referred to in Mr Moore's affidavit sworn on 7 October 1998, and Annexure K to that affidavit, but I note that the application states the amount as $69,855.) 7 The notice of motion and certain subsequent related notices of motion were headed 'The Application of Andrew Hugh Jenner Wily in his Capacity as Joint Liquidator of Nodcad Pty Limited (In Liquidation)'. However, the document also stated that the notice of motion was filed for the First Defendant, Nodcad, and that the Applicant was Nodcad. In my opinion the true applicant was and is Mr Wily in his capacity as liquidator, rather than Nodcad in liquidation. This is because under s 588FF(1) the court has the power to make orders in respect of a voidable transaction, including a transaction which is voidable because it is an unfair preference and an insolvent transaction, only on the application of the company's liquidator. Thus, if the applicant were Nodcad in liquidation rather than Mr Wily as liquidator, the application would necessarily fail. 8 The evidence before me indicates that Mr Moore was engaged by Mr Basto in March 1995 to undertake surveying and engineering work for the subdivision of land at Kellyville. Although there was some uncertainty as to whether Mr Moore had been engaged by Basto Management Limited or by Nodcad, he eventually rendered invoices to Nodcad. He was handed a bank cheque for full payment of the amount claimed on 5 September 1996. 9 By letter dated 8 February 1999 Mr Moore's solicitor wrote to Mr Wily's solicitor raising a point of law with respect to the claim that the payment to Mr Moore was an unfair preference. The point of law is that the claim cannot succeed if the payment was made more than six months before the relation-back day (s 588FE(2)(b)), and Mr Moore's solicitors alleged that the relation-back day is the date of commencement of the administration of the company (namely 2 July 1997, more than six months after the payment) rather than the date of commencement of the winding up proceedings (21 February 1997, when the cross-claim seeking winding up was filed). 10 Since the point of law raised by Mr Moore's solicitors would, if correct, defeat the claim to recover the payment as an unfair preference, a further notice of motion was filed on 23 March 1999, this time by Mr Moore, seeking a determination of the question of law pursuant to Part 31 Rule 2 of the Supreme Court Rules. Master McLaughlin ordered that the following question be decided as a separate question under the Rule: 'Whether the payment made by Nodcad Pty Limited (In Liquidation) to Robert George Moore on or about 6 September 1996 in the sum of $69,855 [for reasons already given, I believe the correct sum should be $69,850] was made during the six months ending on the relation-back day (as such term is defined in Section 9 of the Corporations Law).' 11 The separate question came before me for hearing on 19 April 1999 and is the subject of the present reasons for judgment. 12 Division 2 of Part 5.7B of the Corporations Law is headed 'Voidable transactions'. Section 588FE(2) states: 'The transaction [that is, a transaction entered into after the commencement of Part 5.7B] is voidable if: (a) it is an insolvent transaction of the company; and (b) it was entered into, or an act was done for the purpose of giving effect to it: (i) during the 6 months ending on the relation-back day…' 13 If a transaction is voidable because of s 588FE the court may make various orders on the application of the company's liquidator under s 588FF, except in circumstances described in s 588FG. 'Insolvent transactions' include a transaction which is an unfair prejudice within s 588FA, if the circumstances of insolvency described in s 588FC are present. 14 Therefore, if as in the present case a transaction is attacked solely because it is unfair preference which is an insolvent transaction, the transaction is not voidable and the court cannot make orders in respect of it unless it was entered into, or an act was done for the purpose of giving effect to it, during the six months ending on the relation-back day. For the purpose of answering the separate question in the present case, the relevant transaction is the payment made to Mr Moore of $69,850 on or about 5 or 6 September 1996. It has not been contended that anything was done for the purpose of giving effect to that transaction at a later time. The application of Part 5.7B Division 2 to that transaction depends, under s 588FE(2), on whether the payment occurred during the six months ending on the 'relation-back day'. 15 'Relation-back day' is defined, in relation to the winding up of a company, in s 9. It means: '(a) if, because of Division 1A of Part 5.6, the winding up is taken to have begun on the day when an order that the company or body be wound up was made - the day on which the application for the order was filed; or (b) otherwise - the day on which the winding-up is taken because of Division 1A of Part 5.6 to have begun.' 16 Division 1A of Part 5.6 is headed 'When winding up taken to begin'. Section 513A states: 'If the Court orders under section … 459B … that a company be wound up, the winding up is taken to have begun or commenced: … (b) if immediately before the order was made, the company was under administration - on the section 513C day in relation to the administration; … (e) otherwise - on the day when the order was made.' 17 In the present case paragraph 513A(b) applies because, immediately before Hodgson J made the winding up order on 14 February 1997, Nodcad was under administration, by virtue of the resolution of its directors appointing Mr Wily as administrator which they adopted on 2 July 1997. Consequently paragraph 513A(e) does not apply to the present case. That being so, the present case is not one to which paragraph (a) of the definition of 'relation-back day' applies - that is to say, this is not a case where, under s 513A, the winding up is taken to have begun on the day when the order that Nodcad be wound up was made. Therefore paragraph (a) of that definition does not cause the relation-back day to be the day on which application for winding up of Nodcad was made, which on the present facts was 21 February 1997. Rather, this is a case where paragraph (b) of the definition applies, and the relation-back day is therefore the day on which the winding up it taken to have begun or commenced by virtue of s 513A(b), that is to say the 'section 513C day' in relation to the administration of Nodcad. The 'section 513C day' is defined in that section to be, in the present circumstances, the day on which the administration began, namely 2 July 1997. 18 My conclusion, therefore, is that the payment of $69,850 to Mr Moore, being made on or about 5 or 6 September 1996, was made during the six months ending on the relation-back day, because in the present case the relation-back day was 2 July 1997 rather than 21 February 1997. I propose to answer the separate question accordingly. 19 In my opinion the application of the statutory provisions in the manner described above is clear beyond argument. Counsel for the liquidator argued courageously that in the present case it could not be said that the company was under administration 'immediately before order was made' for the purposes of s 513A(b). He referred to the Federal Commissioner of Taxation v Macquarie Health Corporation Ltd (1999) 17 ACLC 171 and Energy & Resource Conservation Co Ltd (In Liq) v Abigroup Contractors Pty Ltd (1997) 41 NSWLR 169, though he conceded that both were cases which went against him. 20 In the Macquarie Health case the application to wind up the company was filed on 3 July 1996 and administrators were appointed on 20 November 1996. On 28 February 1997 the court ordered that the administration of the company end and that the company be wound up, but those orders were stayed until 10 March 1997. Thus, that was a case where, as here, the application to wind up was filed first, then administrators were appointed, and then a winding up order was made. That case may have been an even easier one than the present because there, it was arguable that the winding up order was made on 28 February 1997, but that the administration did not end until 10 March 1997, when the order became effective; and therefore it must have been the case that for the purposes of s 513A(b), the company was under administration immediately before the winding up order was made (see, as to the ending of the administration, ss 435C(3)(a) and (g)). However, Emmett J did not think it necessary to rely on any such distinction in order to reach a conclusion as to the application of s 513A (see 17 ACLC at 191). 21 The case was the converse of the present case in that there, the liquidator was arguing that s 513A(b) applied and so the winding up began on the date of appointment of the administration (20 November 1996) rather than on the later date when the winding up order was made (28 February 1997). The liquidator wished to establish that the winding up commenced on the earlier date of 20 November 1996 rather than the later date of 28 February 1997 in order to invoke s 468, which applies to dispositions made after the commencement of the winding up, even though success on that point would mean that the relation-back day was the later date of 20 November 1996 rather than the earlier date of commencement of the application to winding up, namely 3 July 1996. In the present case the liquidator wishes to establish the earlier relation-back day (namely 21 February 1997 rather than 2 July 1997) in order to attack an alleged unfair preference, even though that would mean a later date of commencement of the winding up (that is, 14 July 1997 rather than 2 July 1997) - presumably here there was no disposition during the short period between 2 and 14 July 1997 which the liquidator might have wished challenge and s 468. 22 Emmett J held that on the facts before him, s 513A(b) applied and consequently the winding up commenced on the date on which the administration began, namely 20 November 1996. He said that the contrasting uses of the words 'when' and 'immediately before' in paragraphs (a), (b), (c) and (d) of s 513A suggested that a company may be under administration 'immediately before' the winding up order is made even if there is a short interval of time between the ending of the administration and the making of the winding up order (at 191). However, it was unnecessary for him to decide how long an interval would be sufficient to preclude the operation of s 513A(b) because in the case before him the Court's orders for termination of the administration and the winding up of the company took effect at the same moment. 23 In the present case there was an order for the winding up of the company and no separate order was made for termination of the administration. That being so, the administration of Nodcad ended by virtue of s 435C(3)(g), which says that the administration of a company may end because the Court orders that the company be wound up. The winding up order itself terminated the administration, and consequently it must have been true that immediately before the winding up order was made, the company was still under administration. 24 As I have mentioned, counsel for the liquidator also referred to the Energy & Resource Conservation case. In that case McLelland CJ in Eq held that where creditors resolved under s 439C(c) to wind up a company which was under administration, the winding up was by force of ss 513B and 513C taken to have begun or commenced on the day on which the administration began (at 173). Section 513B is the equivalent, for a voluntary winding up, of s 513A, which applies to a winding up by the court. McLelland CJ in Eq proceeded to hold that although the winding up was taken to have commenced on that earlier day, the appointment of the liquidator was not retrospective to that day. 25 My conclusion, therefore, is that the separate question is answered as follows: The payment made by Nodcad Pty Ltd (In Liq) to Robert George Moore on or about 5 or 6 September 1996 in the sum of $69,850 was not made during the six months ending on the relation-back day (as such term is defined in Section 9 of the Corporations Law). 26 Since Mr Moore as applicant has been successful in his contentions as to the correct answer of the separate question, and the liquidator has been unsuccessful, I am disposed to order that Mr Moore's costs as applicant on the motion be paid by Mr Wily as liquidator of Nodcad Pty Ltd (In Liq) as respondent to the motion. However, I shall hear any submissions which the parties wish to make on the question of costs. * * * * * * * *

Olsen v Nodcad

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