Plaintiff v Defendant

2 The Companies conducted operations in forest harvesting, forest management and the provision of technology-based products to the forestry industry. On 19 June 2008, Mr Lofthouse and Peter Gountzos were appointed as joint and several liquidators of each of the Companies. A week later, Michael Scales and Dennis Turner were appointed as receivers and managers over the assets of all but one of the Companies. Mr Gountzos has resigned as liquidator and the Receivers have also retired. Mr Lofthouse has continued to act as the sole liquidator.

3 The investigations of Mr Lofthouse have revealed that:

(a) until about 21 December 2006, all of the Companies' businesses were conducted by one of the Companies, Environmental Consultants International Pty Ltd ("ECI");

(b) in or about December 2006, following the receipt of advice from ECI's external accountants and its lawyers, the directors decided to incorporate different companies to conduct various parts of the business;

(c) the reason for adopting the new structure was to protect parts of the business from liabilities that might arise from the conduct of other parts of the business;

(d) following the restructure, the view inside the Companies remained that all of their businesses were conducted as a single enterprise;

(e) there was no mail-out to creditors or debtors following the restructure to explain how the corporate structure had changed;

(f) following the restructure, the Companies entered into contracts on an ad hoc basis, adopting no consistent method as to which Company was to be the contracting party;

(g) all of the employment contracts, WorkCover policies, leases and insurance contracts for the Companies were entered into by ECI; and

(h) ECI acted, in substance, as the treasurer for the Companies. Some of the Companies never had a bank account, whilst others had bank accounts that were either never used or rarely used. Some of the Companies did maintain and use bank accounts, but:

(i) most receipts were forwarded to ECI regardless of the entity that had received the payment; and

(ii) all payments were made from the ECI cheque account regardless of which entity had incurred the debt. In particular, ECI paid lease expenses, wages and utility bills for all of the locations from which the businesses of the Companies operated.

4 Whilst consolidated accounts were prepared for the Companies, individual financial records were not maintained for any of the Companies. The Liquidator has some accounting records that the Receivers provided to him upon their retirement. However, they are limited. One of the directors informed the Liquidator that the Companies maintained a full set of accounting records using Deltek FMS software. Whilst the Liquidator has been given a back-up of what he is told is the data from the Deltek FMS accounts, the Companies no longer have the Deltek software nor a licence to use it and the Liquidator is unable to access the data. The Liquidator has not been able to ascertain how much it would cost to obtain the necessary Deltek licence. In any event, as a result of information provided by the chief financial officer for the Companies, the Liquidator does not believe that the Deltek software contained full accounts for all of the Companies. In this regard, the Liquidator's investigations uncovered significant deficiencies in their record keeping. The creditors and debtors' ledgers did not show any intercompany debts and relevant source documents were not available.

5 Without knowing what information is contained in the Deltek accounts, the Liquidator cannot accurately estimate what it might cost to attempt to reconcile the existing accounts. Moreover, the Liquidator has no confidence that a reconciliation of the books based on the existing documents would result in a reliable set of accounts being created. He has formed the view that it may be necessary to construct a new set of accounts and that task would be difficult given the lack of source documents and the age of the transactions. The consequence of this may be that even if significant forensic and investigative work was undertaken, it may be unlikely to result in a proper set of accounts being prepared.

6 The Liquidator's "best guess" at the cost of reconciling the existing accounts is in the vicinity of $30,000 to $50,000 (or more) and if it was necessary to construct a full set of accounts, it could cost $80,000 to $100,000.

7 Most of the funds that the Liquidator has received in the liquidation were paid by the Receivers. Those funds were paid into the bank account of Environmental Consultants International (NSW) Pty Ltd ("ECI NSW"). At the time of the application, approximately $120,000 remained in that account. No significant funds remain in the liquidations of any of the other Companies.[2] There are no assets remaining to be realised in any of the liquidations and all that is left to do is to determine the distributions in the liquidations, pay the relevant creditors and lodge final accounts and reports. Some creditors have lodged proofs of debt in respect of particular Companies.

8 Creditors of each Company (other than ECI NSW) have approved the Liquidator's fees in the relevant liquidation. The Liquidator did convene a meeting of the creditors of ECI NSW at which he would have sought to have his fees approved. However, no creditors attended. The meeting was adjourned but no creditors attended the adjourned meeting and it lapsed as inquorate. As a consequence, the creditors of ECI NSW are taken to have passed a resolution[3] determining that the liquidator is entitled to remuneration of $5,000.[4] If the liquidator wishes to obtain payment of his remuneration above that amount he will have to seek a review by the Court.[5]

9 The total of the fees claimed by the Liquidator in respect of all the Companies at the time the application was made was approximately $160,000 of which approximately $22,000 related to ECI NSW.

10 The Liquidator has prepared some calculations which set out the assets in each liquidation, the Liquidator's outstanding claim to remuneration, the estimated unsecured claims in each liquidation (prepared from the proofs of debt submitted and the reports as to the Companies' affairs) and the estimated return to creditors (assuming that the assets remain in the liquidation of ECI NSW and that the Liquidator's current information as to the claims in each liquidation is correct). Those calculations suggest that the ten ECI NSW creditors would receive about 15 cents in the dollar and that the creditors of the other Companies would receive no distribution. However, the Liquidator is concerned as to whether the entirety of funds held by ECI NSW can properly be considered the property of that Company or that each of the creditors who has proved in its liquidation is actually a creditor of ECI NSW. Similarly, the Liquidator is concerned that it is possible that creditors who have lodged proofs of debt in the other liquidations might actually be creditors of ECI NSW. Further, the Liquidator says that he would need to consider contribution and subrogation claims between the Companies arising as a result of the receivership (although ECI NSW is more likely to be a net creditor as a result of any such claims).

11 The Liquidator has deposed that to determine accurately the state of the claims that may properly be made by and against ECI NSW, he would have to reconcile or reconstruct the Companies' accounts. If, following that process, it became apparent that ECI NSW was a debtor of other Companies, those companies would have to prove in the liquidation of ECI NSW, and any distribution made out of ECI NSW would then flow through to the creditors of that Company. The Liquidator has formed the view that there is a real risk that all remaining funds in the liquidation of ECI NSW could be consumed by the additional remuneration, legal fees and other expenses that would be incurred if he attempted a complete reconciliation related to the assets and liabilities of that Company.

12 On the other hand, pooling would avoid the need for the Liquidator's staff to attempt to reconcile the records and accounts of ECI NSW and the other Companies. On the figures as they stand, if a pooling order was made, the effect would be that the unsecured creditors would not receive any distribution after the Liquidator's remuneration and expenses were paid. Because the pooling order would enable him to be paid remuneration in respect of Companies that cannot presently afford to pay that remuneration, the Liquidator would benefit and none of the creditors, even the ostensible creditors of ECI NSW, would be paid anything. The Liquidator has therefore proposed that he will cap his remuneration in respect of all the Companies at $75,000 (which is about 45% of the amount to which he claims to be entitled). The effect of the cap on his remuneration would likely be that the proposed pooling order would lead to a probable return to creditors but that return would be less than one cent in the dollar.

13 The Liquidator gave notice of this application to the creditors of the Companies, but no creditor sought to appear.

14 Section 579E of the Corporations Act provides for the making of pooling orders in certain circumstances.[6] The key issues in this case are:

(a) whether it is just and equitable that a pooling order be made; and

(b) whether a pooling order would materially disadvantage an unsecured creditor of a Company in the group who has not consented to the making of the order.

15 In addition to these issues, s 579E requires that before a pooling order may be made the Court must be satisfied that there is a group of two or more companies; that each company in the group is being wound up; and that at least one of the conditions in s 579E(1)(b) is satisfied (one of those conditions being that each company in the group is a related body corporate of each other company in the group). Each of these prerequisites is satisfied in this case.

Is it just and equitable that a pooling order be made?

16 Section 579E(12) provides:

In determining whether it is just and equitable to make a pooling order, the Court must have regard to all of the following matters:

(ii) the officers or employees of a company in the group;

were involved in the management or operations of any of the other companies in the group;

(ii) the officers or employees of a company in the group;

towards the creditors of any of the other companies in the group;

(c) the extent to which the circumstances that gave rise to the winding up of any of the companies in the group are directly or indirectly attributable to the acts or omissions of:

(ii) the officers or employees of any of the other companies in the group;

(d) the extent to which the activities and business of the companies in the group have been intermingled;

(e) the extent to which creditors of any of the companies in the group may be advantaged or disadvantaged by the making of the order;

17 In re Aboriginal Connections Aboriginal Corporation (in liq) and Guri Wa Ngundagar Aboriginal Corporation (in liq)[7] Barrett JA held:

In deciding whether, according to the concluding words of s 579E(1)(b), it is "just and equitable" that a pooling order be made, the court must, in obedience to s 579E(12), "have regard to" all of the matters specified in s 579E(12). The direction to "have regard to" the specified matters requires that the court "give weight to" those matters "as a fundamental element" in coming to a conclusion_: R v Toohey; Ex parte Meneling Station Pty Ltd_ [1982] HCA 69; (1982) 158 CLR 327 at 333 per Gibbs CJ. The inquiry in the course of which the specified matters must be given that weight is as to what is "just and equitable".[8]

18 Section 579E(12) confers a wide discretion on the Court.[9] However, the discretion must be exercised judicially having regard to the specific factors listed in paragraphs (a)-(e) of the legislation and, under paragraph (f), "any other relevant matters". This requires the Court to consider the whole of the circumstances of the group of companies and their creditors.

19 The Liquidator's evidence makes it clear that the operations of the business were never effectively divided between the Companies when the new corporate structure was put in place. All of the Companies had the same directors and chief financial officer. Operations continued in much the same way that they had when ECI was the only Company running the business. Internally, the businesses were treated as if there were only one enterprise. For example, there was no considered decision made as to which Company ought to enter into any particular contract; rather, contract management was haphazard. In real terms, the business and affairs of each Company was intermingled with those of the other Companies.

20 The Liquidator formed the view that the likely causes of the failure of the Companies were:

(a) their businesses expanded too rapidly and they did not have sufficient debt or equity funding to support that growth;

(b) they did not have the financial systems necessary to support and manage the rapid growth;

(c) the directors and management lacked the necessary management and financial skills to deal with the complexities of the Companies;

(d) they had agreed to pay fees to land owners for harvesting within 14 to 30 days following harvest, but they did not collect sale proceeds from their debtors until 30 to 60 days after sale;

(e) as the business expanded, the margins on contracts reduced; and

21 It would seem then that the downfall of the Companies came about from the same circumstances and were due to the acts and omissions of the directors and management who were common to all of the Companies.

22 In considering whether it would be just and equitable to make a pooling order, regard must be had to whether any of the creditors may be advantaged or disadvantaged by the making of the order.[10] If a pooling order is made, creditors of each of the Companies would receive a distribution of less than 1 cent in the dollar. The initial impression based on the calculations prepared by the Liquidator is that the creditors of ECI NSW may be disadvantaged by the making of the order. As noted above, if the Liquidator were to accept without further investigation that the moneys paid by the Receivers are an asset of ECI NSW and that the creditors of that Company are the ten creditors who have lodged a proof of debt in that liquidation, then those creditors would appear to be disadvantaged because instead of receiving a distribution of approximately 15 cents in the dollar they would receive a distribution of less than 1 cent in the dollar. As things stand, the creditors of the other Companies (based on proofs of debts and reports as to affairs) would not receive any distribution.

23 I accept the Liquidator's evidence that without further work being carried out by him by way of reconciliation or reconstruction of the accounts, there is in fact no certainty at present that the cash asset of approximately $120,000 currently held by ECI NSW can properly be described as an asset of that Company nor that liabilities have been accurately allocated to the relevant Company. If additional work were to be carried out by the Liquidator, additional fees and expenses would be incurred which may significantly erode the available funds even if the cost of that work were at least to some extent spread across the various Companies. There would not only be the Liquidator's fees in respect of the reconciliation or reconstruction of the accounts, but also legal fees incurred as part of the process of investigating the true position in relation to the assets and liabilities of each Company. Following the clarification of the accounts, the Liquidator may also have additional fees arising from the administration of the separate liquidation of each Company.

24 Also to be taken into account when considering whether it would be just and equitable for a pooling order to be made is that there is the potential for the Liquidator to benefit from the making of such an order. As things stand, apart from ECI NSW, there are insufficient funds in the other Companies to pay the Liquidator's outstanding fees and expenses of approximately $143,000 in respect of those Companies. If the pooling order is made, the Liquidator may be able to access the moneys held by ECI NSW for payment of his fees and expenses in respect of other Companies. If the pooling order is not made, then if the cash is properly an asset of ECI NSW it could only be used for payment of the Liquidator's fees and expenses (to date and ongoing) in respect of that Company. The Liquidator would have to seek creditor approval and, failing that, Court approval for such remuneration. If the cash is not properly an asset of ECI NSW but rather an asset of one or more of the other Companies, then it would be used for payment of the Liquidator's fees and expenses in respect of those Companies. The creditors have already given approval for the Liquidator's remuneration in respect of those other Companies.

25 Even if the potential benefit to the Liquidator and possible disadvantage to the creditors of ECI NSW might tend to suggest that a pooling order ought not be made, those matters are outweighed by the overwhelming evidence that first, the Companies never operated independently of one another but rather acted as one entity and secondly, that it is unlikely that the true position is that ECI NSW holds the only asset of real value whilst most of the liabilities are spread between many of the Companies. Whilst further work could be undertaken by the Liquidator in an attempt to unravel the true financial position of each Company, that work, and flow-on work, is not likely to see the creditors obtain any real benefit once the additional remuneration to be paid to the Liquidator is taken into account. This is not a situation in which there is a public interest in the Liquidator undertaking work to reconstruct the accounts such as there might be if the Liquidator's investigations were to be aimed at ascertaining whether recovery proceedings ought be brought to set aside voidable transactions.[11]

26 Another matter weighing in favour of the making of a pooling order is that it is likely to bring forward the payment of a dividend to the creditors and bring the liquidations to an end much sooner than would be possible if no pooling order was made. I have also had regard to the Liquidator's willingness not to seek payment of his fees in excess of $75,000.

27 Overall, in my opinion it is just and equitable that a pooling order be made.

Would a pooling order materially disadvantage an unsecured creditor of a Company?

28 Section 579E(10)(a) provides that the Court must not make a pooling order if it is satisfied that the order would materially disadvantage an eligible unsecured creditor of a company in the group who has not consented to the making of the order.[12] Section 579Q(1)(a) provides that a creditor of a company is an "eligible unsecured creditor" if:

(ii) the creditor is not a company in the group.[13]

29 In this case, no creditor has consented to the making of a pooling order.

30 Barrett JA has expressed the opinion that if a court were of the view that a pooling order would produce "material disadvantage" then it could not be satisfied that it is just and equitable under s 579E(12) to make the order. [14] I agree.

31 In this case, minutes of the meetings of creditors of some of the Companies held in June 2008 record that the Liquidator informed creditors that the affairs of the various Companies appeared to be so interwoven that consideration may need to be given to seeking pooling orders. Once the application was filed, the Liquidator gave notice of it to creditors of all of the Companies and directed them to his firm's website to obtain copies of the documents filed with the Court. In addition, at the Court's direction, copies of the originating process, the affidavits sworn by the Liquidator, the Liquidator's written submissions and a draft of the orders sought were sent to those persons who had claimed to be creditors of ECI NSW. Those documents were accompanied by a circular from the Liquidator in which he fairly explained the reasons for the application and the likely effect if the orders were made (including the likely dividend of less than 1 cent in the dollar for creditors) and the expected position if the orders were not made. No creditor sought to appear at the hearing, nor did any creditor indicate to the Liquidator that they were opposed to the orders being made.

32 In light of the matters that I have canvassed in the preceding section of these reasons, the Court cannot be satisfied that any unsecured creditor would be materially disadvantaged by the making of a pooling order. Whilst without further examination it might seem that the creditors of ECI NSW may be disadvantaged, the Liquidator would not be able to make a distribution to those creditors without further investigation as to the true position in relation to the assets and liabilities of that Company. As noted above, the cost of that work would likely erode the cash sum presently held by ECI NSW.

Is the Liquidator entitled to be paid his remuneration out of the assets of the pooled Companies?

33 The Liquidator has varying amounts outstanding for his remuneration in respect of each of the Companies. As noted above, with the exception of ECI NSW, the creditors of each Company have passed resolutions authorising the Liquidator to be paid remuneration up to a particular cap. None of the caps have been reached.

34 If the Court determined to make a pooling order, the Liquidator also sought a direction that he is entitled to be paid from the assets of the pooled group such remuneration as has been approved by the resolutions of the creditors of each of the Companies (other than ECI NSW). The Liquidator seeks the direction to resolve whether his claims to remuneration and expenses fall to be dealt with under s 579E(2) which makes each company in a pooled group liable for the debts and claims of the other companies in the group. The issue turns on the proper construction of the relevant provisions in the Corporations Act and is properly a matter for directions.[15]

35 Section 579E(2)(a) provides that if a pooling order comes into force, "each company in the group is taken to be jointly and severally liable for each debt payable by, and each claim against, each other company in the group." Subsection (4) provides:

Subsection (2) does not apply to a debt payable by, or a claim against, a company in the group unless the debt or claim is admissible to proof against the company.

36 Section 579M relevantly provides that:

If a debt or claim becomes a debt payable by, or a claim against, a company under any of the following provisions:...

(d) subsection 579E(2) (including that subsection as modified by an order under paragraph 579G(1)(d));...

then, in the winding up of the company, the debt or claim is admissible to proof against the company.

37 That section appears to confirm that the joint and several liability for debts, created by s 579E(2)(a), makes each debt admissible to proof for each group company.

38 Section 553(1) provides:

Subject to this Division [6] and Division 8, in every winding up, all debts payable by, and all claims against, the company (present or future, certain or contingent, ascertained or sounding only in damages), being debts or claims the circumstances giving rise to which occurred before the relevant date, are admissible to proof against the company.

39 In this case, the "relevant" date is the date the resolutions to wind up the Companies were passed; that is, a date before the Liquidator was entitled to any remuneration. [16]

40 Sections 579E(2)(a) and 579M are both in Division 8. Section 556(1), which is in Division 6, relevantly provides:

Subject to this Division, in the winding up of a company the following debts and claims must be paid in priority to all other unsecured debts and claims:

(a) first, expenses (except deferred expenses) properly incurred by a [liquidator][17] in preserving, realising or getting in property of the company, or in carrying on the company's business;

...

(dd) next, any other expenses (except deferred expenses) properly incurred by a [liquidator];

(de) next, the deferred expenses;

41 "Deferred expenses" are defined in s 556(2) to mean in relation to a company:

expenses properly incurred by a [liquidator], in so far as they consist of:

(a) remuneration, or fees for services, payable to the [liquidator]; or

(b) expenses incurred by the [liquidator] in respect of the supply of services to the [liquidator] by:

(i) a partnership of which the [liquidator] is a member; or

(ii) an employee of the [liquidator]; or

(iii) a member or employee of such a partnership; or

(c) expenses incurred by the [liquidator] in respect of the supply to the [liquidator] of services that it is reasonable to expect could have instead been supplied by:

(i) the [liquidator]; or

(ii) a partnership of which the [liquidator] is a member; or

(iii) an employee of the [liquidator]; or

(iv) a member or employee of such a partnership.

42 Section 579E(5) relevantly provides that if a pooling order is made, the order of priority applicable under s 556 is not altered for a company in the group.

43 The Liquidator noted that one possible construction of ss 579E(2), (4) and 553(1) is that a pooling order does not, of itself, make each Company liable for the remuneration to which the Liquidator is entitled from the other Companies. This construction proceeds on the basis that the Liquidator's claim to remuneration having arisen after the relevant date, it is not admissible to proof under s 553(1) and is therefore excluded from the operation of s 579E(2) by s 579E(4). However, the Liquidator submitted that s 579E(4) was not designed to exclude legitimate post-relevant date claims against the company. Rather, he contended, it was designed to avoid s 579E(2) from being read so as to expand the ambit of claims payable in the pooled liquidation beyond those claims that would be payable in the several liquidations absent a pooling order. The Liquidator submitted that that interpretation is consistent with the intention underlying the pooling provisions.

44 The Liquidator's submissions proceeded on the basis that to be admissible to proof, a debt or claim must have arisen at the relevant date within the terms of s 553(1). However, in my opinion, that contention is not well founded. The entitlement of a liquidator to fees and expenses in priority to other debts and claims proved in a winding up arises from s 556(1). In this regard, s 555 provides that:

Except as otherwise provided by this Act, all debts and claims proved in a winding up rank equally and, if the property of the company is insufficient to meet them in full, they must be paid proportionately.

45 It seems to me clear that these sections contemplate that the various debts or claims provided for in s 556 are debts or claims proved in the winding up even though they may not have arisen at the relevant date within the terms of s 553(1). Moreover, as noted above, s 553(1) is subject to Division 6 which includes s 556(1). In my opinion, the debts or claims afforded priority under s 556(1) fall within s 579E(4) as a debt or claim which is admissible to proof. Consequently, the joint and several liability of each company in a pooled group created by s 579E(2)(a) applies to debts or claims given priority in s 556(1).

46 That debts may be provable even though they did not exist at the "relevant date" was the subject of consideration by Campbell J in Re Jay-O-Bees Pty Ltd (in liq); Rousseau Pty Ltd (in liq) v Jay-O-Bees Pty Ltd (in liq).[18] In that case, one of the issues that the court considered was what a liquidator should do when considering whether to admit a proof of debt when the contract on which the proof of debt is based is subject to a claim for rectification by the creditor. Campbell J stated:

Section 553 does not have the effect that all and only claims which are provable are those which existed at the "relevant date". One way in which that proposition is shown to be correct, is by other provisions of the Corporations Act 2001 (Cth) which allow claims. Section 553 is expressed to be "Subject to this Division", and "this Division" extends from ss 553-564 (inclusive). However, there are provisions of the Corporations Act outside "this Division" which can affect the claims which can be proved against the company. If a court declares that a transaction between a company and another party amounted to one of the types of transactions which was voidable under Pt 5.7B Corporations Act, and thus was void against the liquidator, this order undoes the transaction, and permits the other party to have a right of proof for the amount he would be owed when the transaction is undone. A disclaiming of onerous property, under s 568 Corporations Act can result in the person whose contract was disclaimed having a right of proof. If the creditor had issued execution against property of the company or instituted proceedings to attach a debt due to the company or to enforce a charge or charging order against property of the company within 6 months before commencement of the winding up, the creditor can be required to pay to the liquidator any amount so recovered, and is given a right of proof in relation to the amount he could have proved for if the execution, attachment or enforcement of charge or charging order, as the case may be, had not taken place: s 569 Corporations Act. This list of exceptions to s 553 contained in the Corporations Act itself is probably not exhaustive.

Further, sometimes events occurring after the winding up can cause a person who had a provable debt at the "relevant date" to cease to have a provable debt, if those events show that the creditor has ceased to be entitled to be paid: Re Reese; Ex parte Bryant (1890) 7 Morr 144; Re Cahill; Ex parte Fielding (1931) 3 ABC 250; Re Robinson and Turlay (1847) 9 LTOS 412; Wight v Eckhardt Marine GmbH [2003] UKPC 37; [2004] 1 AC 147.

Further, events happening after the "relevant date" can affect the quantum for which a claim is admitted. If a claim is to be valued as at the date on which the winding up is taken to have begun, and the value is affected by contingencies, the process of valuation can legitimately be carried out bearing in mind knowledge acquired subsequently about how those contingencies have turned out: Wight v Eckhardt Marine GmbH [2003] UKPC 37; [2004] 1 AC 147 at [30]-[32].[19]

47 In my view, the effect of the legislation is that the liquidator's claim for remuneration and expenses in respect of each Company is a liability of each other Company in the pooled group and is entitled to priority of payment out of the assets of the pooled group.

48 If that analysis were not correct, I would have been minded to make an order under s 579G(1)(d) of the Corporations Act enabling the Liquidator to be paid his remuneration from the assets of the pooled group. That section gives the Court power to make an order modifying the application of the Corporations Act in relation to the winding up of companies in a pooled group if it is just and equitable to do so. When taken as a whole, it is clear from the pooling provisions in the Corporations Act that the intention is that where the prerequisites are satisfied, the assets and liabilities of multiple companies should be pooled and treated as if there were one entity in liquidation rather than several separate companies subject to separate liquidations. In this regard, s 579E(2) provides for all companies in the pooled group to be liable for each other company's debts or claims; s 579M makes it clear that such claims are admissible to proof against each pooled company; rather than separate meetings, s 579L provides for consolidated meetings of creditors of the pooled companies. That this is the underlying purpose of the legislation is supported by what was said in the Second Reading Speech in the House of Representatives for the bill containing the pooling provisions[20]:

Pooling will permit creditors to agree, or a court to make an order, that the liquidation of related companies should be combined and managed as if they were one company. This facility will allow scope for significant cost reductions in these circumstances, for example through more streamlined administration, consolidated accounts, and removing unnecessary duplication such as for meetings and minutes.[21]

49 If the legislation did not operate to enable the Liquidator to be paid his remuneration from the assets of the pooled group, then he would be required to ascertain which assets belonged to which company in the pooled group and then claim his fees in respect of each company from the relevant company's assets. This would not be desirable in this case where the affairs of the Companies are inextricably intertwined and the group's business has been conducted as one enterprise. In all likelihood, any advantages of making a pooling order would be lost.

50 I am satisfied that this is an appropriate case for the making of orders that the Companies are a pooled group for the purposes of s 579E of the Corporations Act and that the Liquidator is entitled to be paid from the assets of the pooled group such remuneration as was approved by resolutions of the creditors of each of the Companies (other than ECI NSW).

ANNEXURE - Section 579E Corporations Act 2001 (Cth)

(1) If it appears to the Court that the following conditions are satisfied in relation to a group of 2 or more companies

(i) each company in the group is a related body corporate of each other company in the group;

(ii) apart from this section, the companies in the group are jointly liable for one or more debts or claims;

(iii) the companies in the group jointly own or operate particular property that is or was used, or for use, in connection with a business, a scheme, or an undertaking, carried on jointly by the companies in the group;

(iv) one or more companies in the group own particular property that is or was used, or for use, by any or all of the companies in the group in connection with a business, a scheme, or an undertaking, carried on jointly by the companies in the group;

the Court may, if the Court is satisfied that it is just and equitable to do so, by order, determine that the group is a pooled group for the purposes of this section.

Note 1: Section 9 provides that pooling order means an order under subsection (1) of this section.

Note 2: See also subsection (12) (just and equitable criteria).

(2) If a pooling order comes into force in relation to a group of 2 or more companies:

(a) each company in the group is taken to be jointly and severally liable for each debt payable by, and each claim against, each other company in the group; and

(b) each debt payable by a company or companies in the group to any other company or companies in the group is extinguished; and

(c) each claim that a company or companies in the group has against any other company or companies in the group is extinguished.

(c) whether ascertained or sounding only in damages.

(4) Subsection (2) does not apply to a debt payable by, or a claim against, a company in the group unless the debt or claim is admissible to proof against the company.

(5) If a pooling order comes into force in relation to a group of 2 or more companies, the order of priority applicable under sections 556, 560 and 561 is not altered for a company in the group.

(a) a pooling order comes into force in relation to a group of 2 or more companies; and

(b) a secured creditor of a company in the group surrenders the relevant security interest to the liquidator of the company for the benefit of creditors of the companies in the group generally;

the debt may be recovered as a debt that is jointly and severally payable by the companies in the group.

(a) a pooling order comes into force in relation to a group of 2 or more companies; and

(b) a secured creditor of a company in the group realises the security interest;

so much of the debt as remains after deducting the net amount realised may be recovered as a debt that is jointly and severally payable by the companies in the group.

(8) The following provisions have effect subject to any modifications under paragraph 579G(1)(d):

(9) Subsection (2) does not apply in relation to a secured creditor unless the relevant debt is payable by a company or companies in the group to any other company or companies in the group.

(10) The Court must not make a pooling order in relation to a group of 2 or more companies if:

(i) the Court is satisfied the order would materially disadvantage an eligible unsecured creditor of a company in the group; and

(ii) the eligible unsecured creditor has not consented to the making of the order; or

(i) a company in the group is being wound up under a members' voluntary winding up;

(ii) the Court is satisfied that the order would materially disadvantage a member of that company;

(iv) the member has not consented to the making of the order.

Note: For eligible unsecured creditor, see section 579Q.

(11) The Court may only make a pooling order on the application of the liquidator or liquidators of the companies in the group.

(12) In determining whether it is just and equitable to make a pooling order, the Court must have regard to all of the following matters:

(ii) the officers or employees of a company in the group;

were involved in the management or operations of any of the other companies in the group;

(ii) the officers or employees of a company in the group;

towards the creditors of any of the other companies in the group;

(c) the extent to which the circumstances that gave rise to the winding up of any of the companies in the group are directly or indirectly attributable to the acts or omissions of:

(ii) the officers or employees of any of the other companies in the group;

(d) the extent to which the activities and business of the companies in the group have been intermingled;

(e) the extent to which creditors of any of the companies in the group may be advantaged or disadvantaged by the making of the order;

[1] Section 579E(2) Corporations Act.

[2] ECI has approximately $1800 in cash.

[3] Under s. 499(3)(b) Corporations Act.

[4] Section 499(3A) Corporations Act.

[5] Section 504(1) Corporations Act.

[6] The full text of the section is set out in the Annexure to these reasons.

[7] [2012] NSWSC 491.

[9] Re Lombe [2011] NSWSC 1536; (2011) 87 ACSR 84 at [78]- [79].

[10] Section 579E(12)(e) Corporations Act.

[11] See Hall v Poolman [2009] NSWCA 64; (2009) 75 NSWLR 99 at 134.

[12] Section 579E(10)(b) of the Corporations Act applies where a company in the group is being wound up under a members' voluntary winding up. In this case, none of the Companies is subject to a members' voluntary winding up.

[13] Section 579Q(1)(b) of the Corporations Act provides that a creditor specified in the Regulations is also an eligible unsecured creditor. In this regard, r 5.6.73 Corporations Regulations 2001 (Cth) specifies certain creditors as eligible unsecured creditors where there has been a modification of the Corporations Act under s 571 or where they have been determined by a court to be one. Neither of those circumstances applies in this case.

[14] Re Lombe [2011] NSWSC 1536; (2011) 87 ACSR 84 at [82]; Re Aboriginal Connections Aboriginal Corporation (in liq) and Guri Wa Ngundagar Aboriginal Corporation (in liq) [2012] NSWSC 491 at [39].

[15] Re Parker (1997) 80 FCR 1 at 6-7.

[16] Sections 9 and 513B Corporations Act.

[17] The legislation uses the term "relevant authority" which is defined in s 556(2) to mean a liquidator, provisional liquidator, administrator or deed administrator.

[18] [2004] NSWSC 818; (2004) 50 ACSR 565.

[20] Corporations Amendment (Insolvency) Bill 2007 (Cth).

[21] Commonwealth, Parliamentary Debates, House of Representatives, 31 May 2007, 4 (Christopher Pearce). Section 15AB of the Acts Interpretation Act 1901 (Cth) permits the Court to have regard to extrinsic material such as the Second Reading Speech.