YATES J:
1 The plaintiff is a Part 5.7 body that seeks an order that it be wound up under Part 5.7 of the Corporations Act 2001 (Cth) (the Act) on the ground that it is unable to pay its debts. Its present application, made by an interlocutory process dated 17 February 2017, is that Simon John Thorn and Bradley John Tonks be appointed as joint and several liquidators of the plaintiff provisionally. The application is made in somewhat unusual circumstances.
2 As at 6 December 2016, the plaintiff, which is incorporated in the Cayman Islands, operated the Australian branch of Kreab, an international public relations and communications consultancy group. At that time, Kreab was trading only in Australia. The plaintiff had offices in Sydney, Canberra, Melbourne and Perth with employees based in each of those locations. The plaintiff had 14 employees. It does not appear to have had offices or employees outside Australia. At that date, the plaintiff had four related-party international creditors. One creditor appeared to be from its place of incorporation. That creditor was owed registered office fees. Otherwise, the plaintiff's creditors appear to be Australian-based, with its largest non-related-party creditor being the Australian Taxation Office (ATO), which was owed approximately $995,000. The plaintiff had four directors, three of whom were resident in Sweden. The fourth director was an Australian resident who was also registered as the agent of the company in Australia. The plaintiff had granted security interests that had been registered under the Personal Property Securities Act 2009 (Cth).
3 On 6 December 2016, the plaintiff's directors resolved to appoint Mr Thorn and Mr Tonks as joint and several administrators pursuant to section 436A(1) of the Act. Mr Thorn and Mr Tonks are partners in PKF (NS) BRI Limited Partnership (PKF), an accountancy and business advisory firm. As I have noted, the plaintiff is a Part 5.7 body. It is a foreign company registered under Division 2 of Part 5B.2 of the Act: see s 9 of the Act. As such, the provisions of Part 5.3A of the Act (dealing with the administration of a company's affairs) do not apply to it: Re Reef Cove Resort Limited [2009] QSC 378 at [17].
4 Although PKF had carried out searches as part of the due diligence that Mr Thorn and Mr Tonks usually carry out before accepting an appointment as administrators, Mr Thorn and Mr Tonks had not turned their minds to the question of whether a voluntary administrator could be appointed to the plaintiff.
5 Following their appointment, Mr Thorn and Mr Tonks took control of the plaintiff's business. They reviewed the books and records that had been provided to them. They formed the view that sufficient information and documentation was available to correctly record and explain the plaintiff's financial position, and to enable true and fair financial statements to be prepared. They conducted a campaign in an attempt to sell the plaintiff's business as a going concern. Although they received expressions of interest from a number of parties (including two parties who entered into non-disclosure agreements and paid a deposit), ultimately no offer to acquire the business was made. Further discussions with a view to a sale by way of management buyout proved fruitless.
6 Mr Thorn and Mr Tonks continued to trade the plaintiff's business from the date of their purported appointment until 23 December 2016, when the business ceased to operate. The decision to trade was taken with a view to maximising the plaintiff's value in work in progress and in debtors. The decision to cease to operate the business was based on a lack of forward work, with the prospect that the plaintiff was likely to trade unprofitably in January 2017 and beyond. As Mr Thorn and Mr Tonks had not been able to secure a sale of the business, it followed that any future trading would deplete the assets of the plaintiff for no benefit.
7 On about 13 December 2016, Mr Thorn and Mr Tonks received a statement concerning the company's business, property, affairs and financial circumstances. They carried out preliminary investigations, forming the view that the plaintiff may have traded whilst insolvent and that there were a number of antecedent transactions that would need to be investigated.
8 On 18 January 2017, the second meeting of creditors was held in the administration. At that meeting, the creditors resolved that Mr Thorn and Mr Tonks be appointed as joint and several liquidators of the plaintiff. The creditors also passed a number of resolutions concerning remuneration.
9 Following that meeting, Mr Thorn and Mr Tonks proceeded on the basis that they had been appointed as liquidators of the plaintiff. That appointment was not possible in light of s 583(b) of the Act; see also Peninsular Group Ltd v Kintsu Co Ltd (1998) 44 NSWLR 534.
10 Since that time, Mr Thorn and Mr Tonks have continued to seek the recovery of the plaintiff's receivables. They have considered what property of the plaintiff should be disclaimed and have served eight notices of disclaimer, which they have caused to be lodged at the Australian Securities and Investments Commission (ASIC). The disclaimers include the four leases of office premises at Sydney, Canberra, Melbourne and Perth, and leases of equipment. They have continued their investigations concerning potential recoveries to the plaintiff, including potential claims for insolvent trading and recoveries in respect of antecedent transactions. They have also continued to determine an employee distribution from the funds they hold, as well as identifying and calculating Fair Entitlements Guarantee claims. Those claims have been placed on hold pending the resolution of the present application.
11 Mr Thorn and Mr Tonks only became aware of the difficulties with their appointment as administrators, and subsequently as liquidators, of the plaintiff in late January 2017, when the plaintiff's agents in the Cayman Islands sought to collect outstanding annual return fees for the 2017 year. Mr Thorn and Mr Tonks sought legal advice, which has led to the present application.
12 On 3 February 2017, the plaintiff's directors resolved that an application should be made to the Court for the plaintiff's winding up. As previously noted, the business of the plaintiff ceased on 23 December 2016. There is evidence before the Court, based on statements made to Mr Thorn and Mr Tonks by the plaintiff's directors, that the plaintiff's liabilities exceed the estimated realisable value of its assets by approximately $1.129 million. Mr Thorn and Mr Tonks have concluded, based on preliminary work, that, on a liquidation, employee entitlements would be realised somewhere within the range of 45 to 80 cents in the dollar. So far as the general body of unsecured creditors is concerned, they have not been able to provide an estimated return, but have noted the prospect that, on a pessimistic scenario, the general body of unsecured creditors will receive nothing.
13 The work that remains to be done includes:
finalising Fair Entitlements Guarantee claims and processing employee distributions;
recovering the balance of the plaintiff's receivables;
obtaining and considering advice and prosecuting any claims for antecedent transactions and possibly for insolvent trading;
ruling on proofs of debt and making any distributions; and
reporting to ASIC.
14 It is estimated that this work will be completed by March 2018, subject to any litigation in relation to antecedent transactions or insolvent trading claims.
15 I am satisfied that Mr Thorn and Mr Tonks should be appointed as provisional liquidators of the plaintiff. I note their respective consents to act in that capacity. Leave of the Court is required under section 532(2)(b) of the Act for that appointment to take place given that each is a creditor of the plaintiff for an amount exceeding $5,000.00, on the basis of work that has heretofore been performed by them following their purported appointment as administrators. I can see no reason why that leave should not be granted in the present circumstances, particularly having regard to the will of the creditors expressed at the second meeting of creditors on 18 January 2017 that Mr Thorn and Mr Tonks be appointed as joint and several liquidators of the plaintiff.
16 I am satisfied that, on the evidence before me, there is a clear case of insolvency. I also take into account the fact that the plaintiff has ceased to carry on business in Australia and that the plaintiff's directors have resolved that it be wound up.
17 As I have noted, Mr Thorn and Mr Tonks could not be appointed as administrators of the company; nor could they have been validly appointed as liquidators of the company at the second meeting of creditors. The plaintiff should not be left in a state of legal limbo. The appointment of Mr Thorn and Mr Tonks as provisional liquidators would be a significant step towards regularising the status of the company and provide a proper framework in which the affairs of the company can continue to be administered.
18 Although on the material before me the prospect seems unlikely, I am mindful of the fact that, in light of the history of the matter, there may be some objection to their appointment as liquidators, or indeed even in acting as provisional liquidators. I propose to make an order, to the extent that it is necessary to make such an order, that leave be granted to any person showing sufficient cause to move to discharge Mr Thorn's and Mr Tonks' appointment as provisional liquidators on proper grounds being shown.
I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.