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[2005] VSC 496
Supreme Court of Victoria
2005-12-22
Mandie J
Original judgment source is linked above.
*Mr P Tiwari appeared for himself on 31/10/05 and 2/11/05
Introduction
1 This proceeding arises out of the affairs of an Indian grocery business ("the business" or "the Bharat Traders business") conducted in West Footscray by S & D International Pty Ltd ("the Company") as trustee for the S & D International Unit Trust ("the Trust").
2 The plaintiff, Dinesh Malhotra,[1] is the holder and the beneficial owner of one-half of the units in the Trust. The remaining units in the Trust were formerly held by the defendant Sheela Tiwari ("Sheela Tiwari")[2] and it is sufficient to say that they are now held or controlled by interests representing her or her family.
3 Sheela Tiwari and her son, the defendant Pradeep Tiwari, are and have been for some time the only directors of the Company.
4 The Company entered voluntary administration under Part 5.3A of the Corporations Act 2001 (Cth) ("the Act") on 29 April 2005 when the defendants Peter Robert Vince ("Mr Vince") and Stirling Lindley Horne ("Mr Horne") were appointed administrators. On 29 June 2005 the Company went into liquidation and Messrs Vince and Horne became the liquidators.
5 The proceeding was commenced by originating process filed on 12 July 2005, pursuant to which the plaintiff seeks orders, inter alia, that the liquidation of the Company be terminated. Of central importance in the proceeding are two principal contentions of the plaintiff. The first is that the Company is solvent and should not be wound up. The second and related contention is that Messrs Vince and Horne, both as administrators and as liquidators, have misconducted themselves to such an extent that their remuneration should be disallowed and their right to an indemnity for the trading losses of the Company denied with the result that what would otherwise be a substantial liability of the Company would be eliminated.
6 I note that there is an additional defendant, one David Mond (or "Mond"), who was not represented at trial. Mond is the principal of the firm David Mond & Associates which was the Company's accountant, but appears also to have been at relevant times a financial adviser to Sheela Tiwari and to Pradeep Tiwari and perhaps to the Tiwari family generally. On 19 August 2005, on application by Mond, I ordered that the proceeding be stayed as against him until further order "except insofar as there is a challenge to [Mond's] proof of debt". The exception is probably of no significance, because there is no challenge as such to Mond's proof of debt in this proceeding. That is because he has not as yet lodged a formal proof of debt. He did lodge an informal proof of debt but that was only indirectly challenged in the sense that the plaintiff contended that Mond should not have been treated as a creditor for the purposes of voting at a creditors' meeting and the challenge was made by way of appeal against the administrators' decision to count his vote. It was not an appeal against any proof of debt as such.
Facts
7 At all relevant times the business was conducted under the name "Bharat Traders International". The business had commenced in 1991 as a partnership between the plaintiff and his brother, Vinod Malhotra, and one Markandey Tiwari.[3]
8 At some stage the plaintiff and Sheela Tiwari married and after July 1996 the business was physically conducted by the two of them.
9 The Company was incorporated on 29 July 1996. The Trust was formed by a trust deed of the same date with the Company as trustee and on or shortly after that date the Company came to operate the business as trustee for the Trust. It is worth noting, having regard to statements made at various times by or on behalf of the plaintiff, that at all times the rights of unit holders to "ownership" of, including the right to possession and enjoyment of, the assets (including the business) of the Trust were governed by the terms of the trust deed and were subject to the duties and powers of the trustee (ie the Company) thereunder.
10 The nature of the business was described in a number of public documents over the period from 1996 to 2002 as comprising, in substance, the importing and wholesaling of Indian groceries as well as the retailing of Indian groceries.
11 In or about January 1997 the Company purchased the premises from which the business was thereafter conducted, namely the building (comprising a shop and dwelling) situated at 580 Barkly Street, West Footscray ("the Footscray property"). In 2002 the Company purchased a vacant block of residential land at 45 Boronia Drive, Hillside ("the Hillside property") situated in the shire of Melton. The Footscray property and the Hillside property remain Trust assets registered in the name of the Company.
12 From the time of the formation of the Trust and the Company Sheela Tiwari had been a director of the Company, the holder of the only two issued shares in the Company and the only holder of issued units in the Trust. In a document signed by Sheela Tiwari, dated 16 October 2000, Sheela Tiwari acknowledged in substance that the plaintiff owned equally (and jointly) 50% of the Trust and other assets (this document is the so-called "Statement of Assets and Liabilities"). In circumstances that are unnecessary to detail, the plaintiff and Sheela Tiwari were divorced in 1995 but their relationship appears to have continued for some years. On 26 April 2002, the relationship (including the business relationship) between the plaintiff and Sheela Tiwari completely broke down and the plaintiff was "locked out" of the Footscray property and excluded from participation in the running of the business. As a result, on 19 August 2002, the plaintiff commenced Supreme Court proceeding number 6869 of 2002 ("the first Supreme Court proceeding") in which the plaintiff, in substance, claimed a beneficial interest in one-half of the assets of the Trust.
13 In July 2002 Sheela Tiwari completed the purchase of a residential property at 5 Livorno Lane, Point Cook ("the Point Cook property"). The amount of $474,242.35 payable at settlement was partly obtained from funds of the Company. The Company obtained a loan of $200,000 from the ANZ and that sum (apparently together with a further amount of company funds of about $27,000) was used by Sheela Tiwari in purchasing the Point Cook property. Apparently Sheela Tiwari also personally borrowed the sum of $275,000 to complete the purchase.
14 It would not seem to be in dispute that the business was successful with reported profits for the financial years 2001-2002 and 2002-2003 of about $150,000 per annum, although it is to be noted that these profits were calculated without charging wages for those family members who were employed in the business.
15 On 29 January 2004, Pradeep Tiwari signed and lodged a Business Names Application form in relation to the business stating the nature of the business to be "retail, Indian groceries, lentils, spices". The activities of importing and wholesaling as referred to in earlier descriptions of the nature of the business were omitted. At or about the same time, Pradeep Tiwari signed and lodged a Business Names Application form in relation to the business name "Tiwari & Co" with a proposed starting date for the business of 3 March 2004 and with the same address as the business of the Company (ie the Footscray property).
16 I interpolate here that Pradeep Tiwari in an affidavit sworn 8 April 2005 said that on 2 March 2004 he registered the business name Tiwari & Co and that it was his intention to build a business wholesaling electronic products such as mobile phones, DVD players and MP3 players to retailers in Melbourne. He said that, since he was living at the Footscray property and working in the business there, he obtained his parents' permission to use the address of the Footscray property and to start the wholesale business from those premises. He also deposed that, in April 2004, he was contacted by numerous suppliers to the Bharat Traders business who told him that the plaintiff had been writing to them demanding copies of documents and accounts and who expressed concern about being paid for the goods that they supplied. Pradeep Tiwari said that, as a result, he purchased goods from those suppliers and gave them assurances that they would be paid by Tiwari & Co, and he then on-supplied the goods to the Bharat Traders business. Pradeep Tiwari deposed that in this way he was "virtually forced by the plaintiff to enter into the wholesale grocery business and now the wholesale business supplies wholesale groceries such as spices to a range of customers ..."
17 On or about 22 July 2004, a cheque was drawn on the Company's business account with the Commonwealth Bank of Australia ("CBA") for the sum of $39,500, apparently for the purpose of paying the 10% deposit payable for the purchase by Pradeep Tiwari of a warehouse property at 25 Richards Road, Hoppers Crossing ("the Hoppers Crossing property"). The relevant cheque butt has been altered from whatever was originally written on it to read "$39,500 distribution to Tiwari Family Trust on account of Pratina, Pradeep, Pratibha and Pranita"[4].
18 By letter dated 3 August 2004 from David Mond & Associates to the ANZ Banking Group Ltd ("ANZ"), funding was sought for the purchase of the Hoppers Crossing property (at which a new business was to be conducted by Tiwari & Co Pty Ltd). An attached summary by Pradeep Tiwari, director, said that the new business would be wholesaling predominantly, with the opportunity to expand into full retail. The summary said that the goods were rice, flour, oil, nuts, spices, lentils, pulses, beans, refrigerated/frozen foods, cooking utensils, DVDs and videos, and that these goods were mainly imported from India. The summary said that there were two containers of foodstuffs and general goods coming from India currently, and that one-third of the stock was already pre-sold to customers or smaller business that they also supplied. A structural diagram was enclosed showing a trust structure and stating that a new company had been created called Tiwari & Co Pty Ltd, trading as Bharat Imports. In support of the submission for funding, attached to the letter were financial statements of the S&D International Unit Trust for the year ended 30 June 2004 with comparative figures for the year ended 30 June 2003. It would appear that, at that stage, the first Supreme Court proceeding being undecided, distributions of the net profits were being made from the S&D International Unit Trust to the supposed beneficiary, namely the Tiwari Family Trust (the transferee from Sheela Tiwari).
19 I interpolate here that Pradeep Tiwari deposed that, on 9 September 2004, he established Tiwari & Co Pty Ltd to operate the wholesale business of Tiwari & Co and that the warehouse at the Hoppers Crossing property was purchased around this time "without any funds from [Sheela Tiwari and the Company]." He deposed that as at April 2005 Tiwari & Co Pty Ltd supplied a broad range of goods to some 15-16 customers on a wholesale basis. The goods included Indian products, electronic devices, phone cards, food stuffs, DVDs and books. The customers included shops and restaurants. He deposed, in effect, that he was not diverting business from the Bharat Traders business.
20 On or about 20 September 2004, a cheque was drawn on the Company's business account with the ANZ for the sum of $40,000, apparently for the purpose of providing funds to be applied towards the completion of the purchase of the Hoppers Crossing property. Pradeep Tiwari testified that this sum represented the proceeds of four bank cheques, each in the sum of $10,001 which he had deposited in the Company's bank account and various bank cheque records were tendered in evidence. He said that he had used the Company's bank account for convenience but that the bank cheques were birthday presents to him from various relatives.
21 The Hoppers Crossing property was registered in the name of Pradeep Tiwari. There is a registered mortgage to the ANZ and the plaintiff has lodged a caveat on the title claiming that he is entitled to an estate in fee simple in the property although, in the present proceeding, the only claim to the Hoppers Crossing property which was mentioned was one by the Company.
22 The trial of the first Supreme Court proceeding took place before Balmford J between 22 November and 14 December 2004. The plaintiff was represented, as he is in this proceeding, by Mr J Selimi of counsel. The defendants, Sheela Tiwari and the Company, were represented by Mr J Evans of counsel, instructed by Velos & Davis, solicitors. Among other things, Sheela Tiwari apparently testified that the Statement of Assets and Liabilities did not bear her signature and that the signature was a forgery.
23 On 16 February 2005, Balmford J handed down her reasons for judgment in the first Supreme Court proceeding.[5] The plaintiff was successful. Her Honour wholly rejected the evidence of Sheela Tiwari and found that the evidence of the plaintiff was to be preferred, despite a history of other matters that called his credibility into question. The actual judgment was pronounced a few weeks later.
24 It would seem that very shortly after the handing down of reasons for judgment in the first Supreme Court proceeding, David Mond was instructed to develop a claim or obtain a report (or both) relating to remuneration for those members of the Tiwari family who had worked in the business during the period after the plaintiff had been "locked out". It appears that Mr Mond retained Crossroads Management Group Pty Ltd to prepare a report ("the Crossroads report") and for that purpose Crossroads interviewed the relevant employees and management during the week commencing 21 February 2005. The Crossroads report itself is dated 28 February 2005 and analyses in detail appropriate remuneration for each of seven members of the Tiwari family in the period from 2000 to 2005. The analysis was subsequently used to make claims against the Company totalling in excess of $1M.
25 Apparently as a result of receiving some information about withdrawals of cash from the Company's bank account or accounts, the plaintiff on or about 18 February 2005 wrote to the CBA informing the bank of his success in the first Supreme Court proceeding and further requesting that no withdrawals take place in relation to any accounts held by the Company and/or the Trust and no encumbrances be placed on their assets without his written consent. The Company's bank account with the CBA was frozen for a short time as a result. After the account was unfrozen, the directors made a number of cash withdrawals which have been the subject of complaint by the plaintiff. I note below, when referring to the administrators' second report, some of the details of these withdrawals.
26 On or about 25 February 2005, Velos & Davis caused to be served on the Company at its registered office a statutory demand pursuant to s.459E of the Act claiming that the Company owed the firm the sum of $146,925.33 under a written agreement dated 4 November 2004 and tax invoices dated 3 & 5 November 2004 and 13, 17 & 20 December 2004. An affidavit accompanying the demand sworn by Bill Velos, solicitor, deposed that he was a partner in the firm Velos & Davis which was the creditor in respect of a debt of the said amount owed by the Company to Velos & Davis relating to services provided. He deposed that he was the person who had dealings with the Company that gave rise to the debt and that he believed that there was no genuine dispute about the existence or the amount thereof.
27 By judgment of the Court dated 4 March 2005 the plaintiff was granted declarations that he was the "equal joint beneficial owner" of the Footscray property, the Hillside property, the business, the issued shares in the Company and the issued units in the Trust. It was common ground, in the present proceeding, that the true effect of these declarations was that the plaintiff was an equal unit holder in the Trust and in the Trust assets (subject, of course, to any liabilities of the Trust). That is to say, the plaintiff was an equal unit holder in the Trust, with Sheela Tiwari (or her successors and transferees) being entitled to the other half of the units thereof. Thus, the plaintiff was not entitled, other than under the Trust, to any beneficial or equitable interest in the Footscray property, the Hillside property or the business. His entitlement arose under the Trust, as a beneficial holder of one-half of the units thereof.[6]
28 By the judgment given on 4 March 2005 it was also declared that the plaintiff was an equal joint beneficial owner of any other property which was owned by Sheela Tiwari as at 16 October 2000 and any other property acquired by her since 16 October 2000 "with moneys provided and/or financed by the [C]ompany and/or the Trust commensurate with the financial contribution of the [C]ompany and/or the Trust to such acquisition". This is a curious declaration because it refers to the rights of the plaintiff rather than the rights of the Company as trustee. In the present proceeding, the emphasis was on the rights of the Company in relation to certain properties purchased by utilising Company finance or funds.
29 The judgment further declared that the plaintiff was entitled to receive "one-half of the net taxable income generated by the [C]ompany and/or distributed by the Trust since 22 April 2002."[7]
30 Finally the judgment dated 4 March 2005 ordered Sheela Tiwari to pay the plaintiff's costs, in substance, on an indemnity basis.[8]
31 On 18 March 2005 a notice of appeal by Sheela Tiwari was filed against the judgment and orders of Balmford J in the first Supreme Court proceeding.
32 After judgment, Sheela Tiwari and her family continued to run the Trust business and to remain in occupation of the Footscray property. The Company remained trustee of the Trust and the directors were unchanged.
33 On 19 March 2005 the plaintiff, accompanied by his third wife and their child and by his solicitor, sought to enter the Footscray property on the basis that he was entitled to do so. His entry was resisted but, as a result, the business was closed for nearly two days.
34 By letter dated 21 March 2005 from the plaintiff to the ANZ marked "extremely urgent", the plaintiff stated:
"Re: S & D International Pty Ltd; S & D International Unit Trust
I advise that I am an equal joint beneficial owner of the shares in the above company and the units in the Unit Trust. I enclose a copy of the sealed Order of the Supreme Court of Victoria for your records as evidence of my beneficial ownership.
I advise that I am concerned to protect my interests in the company and the Unit Trust.
Accordingly, I hereby advise that I prohibit your bank from undertaking any transaction involving the above entities without first obtaining my prior written consent. Should any transaction be undertaken without my prior written consent, I put you on notice that I propose to take legal action against your bank for conversion of funds. Without limiting the generality of this prohibition, no withdrawal of any funds is to be permitted whatsoever in relation to any accounts held by [the Company and the Trust]... Further, no incumbrances are to placed on the assets of [the Company and the Trust] without my prior written consent. ..."
35 By letter dated 22 March 2005, the ANZ reacted to this information by advising Mond, as accountant for the Company, that a change in the unit holdings in the trust of 50% was a significant change in ownership and that the bank reserved "the right to review the terms and conditions of ongoing facilities which are provided 'at call' including a call-up of outstanding loans in accordance with the bank's security."
36 In the first Supreme Court proceeding, a summons was next taken out by the plaintiff dated 22 March 2005 seeking an injunction restraining Sheela Tiwari, Pradeep Tiwari and Markandey Tiwari "from interfering with the Plaintiff's equal right to the use, occupation, enjoyment and quiet possession of" the Footscray property and seeking that Sheela Tiwari be dealt with for contempt of court. The summons particularised the contempt as being the alleged failure to comply with the judgment by prohibiting the plaintiff from entering the Footscray property and also by failing to transfer to the plaintiff one-half of the units in the Trust.
37 The plaintiff's application was met by a summons filed 23 March 2005 in which the defendants in the first Supreme Court proceeding sought a stay of execution of the orders made by Balmford J and an injunction, pending appeal, restraining the plaintiff from entering into possession of the Footscray property or interfering with the operation or management of the business. Affidavits filed on behalf of those defendants disclosed that on Saturday 19 March 2005 the plaintiff and his solicitor had entered the shop and made certain demands. The ensuing dispute and physical confrontation resulted in the business remaining closed over the weekend.
38 In an affidavit sworn on 22 March 2005, in support of the application for a stay, Sheela Tiwari deposed that, for the three years following the "departure" of the plaintiff from the business, the business had grown and that new suppliers had been obtained from India, Pakistan and other countries, new large volume customers had been secured including Indian restaurants and other shop proprietors, new stock lines had been introduced and a DVD library was now operating with over 100 subscribers. The affidavit went on to refer to the good relationship that her family members had with customers, suppliers, banks and other creditors. She undertook to conduct the business in such a manner so as to preserve the business. There was no suggestion in any of the supporting affidavits that the Company was in any financial difficulty.
39 By letter dated 24 March 2005 from the CBA to the Company, the CBA advised Sheela Tiwari that it had been "requested to stop all accounts [of the Company and the Trust]" in terms of Supreme Court Judgement No. 6869 dated 4 March 2004 and that the overdraft limit had been cancelled and the file forwarded to the bank's Credit Management Unit. This request had been made to the CBA by the plaintiff.
40 On 24 March 2005 Bongiorno J ordered that there be a stay of execution of the orders of Balmford J pending the hearing and determination of the defendants' summons and adjourned both applications until 11 April 2005, upon an undertaking by the plaintiff not to enter into possession of the Footscray property or interfere with the operation or management of the business. Among other affidavits filed, there was an affidavit by the defendants' solicitor, Mr Kooblal (of the firm of Boyle Telfer & Kooblal ("BTK")) deposing that the Tiwaris' former solicitors, Velos & Davis, were claiming a lien for their fees over the file and that this had prevented the preparation of a transfer of the relevant shares and units to the plaintiff.
41 An affidavit of the plaintiff sworn 24 March 2005 was also filed. It is apparent from the affidavit that the plaintiff believed that the judgment of Balmford J entitled him to exercise rights of ownership in respect of the Footscray property and to immediately participate in the continuing conduct of the business by the Company (as Trustee), notwithstanding the operation of the business by the Company with its then directors. The plaintiff complained in his affidavit that Sheela Tiwari "has continued to lock me out of my home and business". This belief perhaps flowed from the form of the judgment given on 4 March 2005 but, at any rate, in the light of the consensus in the present proceeding concerning the true effect of the judgment, it was a mistaken belief.
42 The plaintiff's said affidavit raised a number of further matters which have been the subject of considerable evidence in the present proceeding, namely:
(a) the purchase by Sheela Tiwari of the Point Cook property using moneys borrowed by the Company;
(b) the commencement of a business under the name "Tiwari & Co" similar in nature to the business operated by the Company;
(c) the purchase of the Hoppers Crossing property for that business, financed on the security of assets of the Company;
(d) the diversion of business and stock from the Company to Tiwari & Co or its successor, Tiwari & Co Pty Ltd;
(e) the withdrawal of substantial amounts of cash from the business shortly after the judgment on 16 February 2005; and
(f) the payment of Sheela Tiwari's defence of the first Supreme Court proceeding with funds of the Company.
43 On 11 April 2005, Hansen J extended the stay of execution granted by Bongiorno J pending the hearing and determination of an application by the defendants to the Court of Appeal, which application was made returnable on 22 April 2005.
44 In paragraphs 8 and 9 of the plaintiff's affidavit affirmed on 18 August 2005 ("the plaintiff's first affidavit"), the plaintiff purports to describe what occurred before the Court of Appeal on 22 April 2005. According to the plaintiff, the Court of Appeal "suggested that the parties should agree to the appointment of an administrator or receiver to manage the business pending the determination of the appeal". I note that there is no transcript of this application before the Court of Appeal but, in any event, it is what the parties themselves then agreed that is relevant to the issues in this proceeding.
45 In para 8 of the plaintiff's first affidavit, the plaintiff purports to set out his thought process and the state of knowledge of Sheela Tiwari in arriving at the agreements and undertakings which were subsequently recorded under the heading of "OTHER MATTERS" in the orders of the Court of Appeal. This evidence is irrelevant.[9] There is no admissible evidence of any mutual intent or consensus of the parties to the first Supreme Court proceeding other than that which is recorded in the Order itself. I therefore turn to the content of that Order.
46 On 22 April 2005, the Court of Appeal made certain orders as to a stay and an expedited appeal upon the basis of the following matters:
(1)(a) Upon the applicants and the respondent agreeing to appoint Peter Vince and Sterling Horne as joint administrators ("the joint administrators") of the second applicant ("the company") and
(b) Upon the company by its counsel undertaking to deliver to the joint administrators and to the respondent a resolution of the company appointing the joint administrators as joint administrators of the company pursuant to s.436A(1) of the Corporations Act 2001 by 29 April 2005; and
(2) Upon the respondent by his counsel undertaking that the respondent whether by its servants, agents or otherwise howsoever will not, until the appointment of the joint administrators:
(a) take any step without the consent of the applicants to enter upon the land at 580 Barkly St West Footscray in Victoria; and
(b) interfere directly or indirectly with the operation and/ or management of the business known as Bharat Traders International; and
(3) Upon the applicants by their counsel undertaking to execute transfer of 50 per cent of the issued shares in the company and a transfer of 50 per cent of the issued units in the S & D International Unit Trust ("the trust") in favour of the respondent and deliver the transfer of shares and the transfer of units to the respondents solicitors by 29 April 2005, the respondent by his counsel undertakes not to charge or dispose of the shares in the company and the units in the trust until the determination of the appeal or further order; and
(4) Upon the applicants acknowledging that the respondent shall be deemed to be a registered unit holder of 50 per cent of the issued units in the Trust upon delivery to him, pursuant to carrying out paragraph 3 above, of the transfer of such units to the respondent notwithstanding any inability to enter the name of the respondent in the unit-holders register of the Trust."
47 It can be seen from the above that the "applicants" (namely Sheela Tiwari and the Company) and the "respondent" (namely the present plaintiff) agreed to appoint Messrs Vince and Horne as joint administrators of the Company. Obviously it was only the Company that could appoint administrators and then only if the Board of the Company so resolved.[10] However, para 1(a) in Other Matters, when read together with para 1(b), may be taken as evincing an agreement by the parties to the first Supreme Court proceeding that administrators should be appointed pursuant to Part 5.3A of the Act. No doubt it can also be inferred that the consent of the other director of the Company, Pradeep Tiwari, had been obtained to this course or that it was anticipated that there would be no difficulty in obtaining his consent.
48 The significant matter for present purposes is that the parties to the first Supreme Court proceeding (who were all represented therein by solicitors and counsel) agreed that the Company should be placed in administration pursuant to and subject to the provisions of Part 5.3A of the Act. If the parties had mutually agreed or mutually intended that an independent manager or receiver should be appointed to control the Company and/or the business only until the determination of the appeal in the first Supreme Court proceeding, then the adoption of administration pursuant to Part 5.3A of the Act was clearly inappropriate.[11] That is because the appointment of administrators under s.436A of the Act is posited upon a resolution of the Board to the effect that a company "is insolvent, or is likely to become insolvent at some future time" and because, in addition, all the provisions of Part 5.3A including those as to the objects thereof, the procedures to be followed and the duties imposed upon administrators all come into force and effect and have an operation independent of any other intentions or motivations of those who agree to an administration or appoint or seek the appointment of administrators. In particular, administrators are bound by the provisions of the Act and not by the intentions and motivations of such parties. Furthermore, the time constraints resulting from the appointment of the administrators were governed by the provisions of the Act and did not relate to any time considerations flowing from the likely dates for the hearing and determination of the appeal in the first Supreme Court proceeding.
49 In paras 8 and 9 of the plaintiff's first affidavit, the plaintiff says that the Court of Appeal made a comment or comments to the effect that the business was "a very profitable business" and that no suggestion was made at the time that the Company was insolvent. This evidence is irrelevant. The fact is that the administrators were appointed (as will be seen below) upon the basis of a resolution by the directors that the Company was likely to become insolvent at some future time. Indeed, in the present proceeding, Mr Selimi in substance accepted that it had been appropriate to put the Company into administration because the Company was in April 2005 likely to become insolvent at some future time because of the existence of a substantial and unpaid debt called up by the CBA and due and payable on 30 June 2005.
50 Before the orders were made by the Court of Appeal on 22 April 2005, Mr Kooblal spoke to Mr Vince concerning the proposed appointment of joint administrators. Mr Kooblal told Mr Vince that there was an Indian grocery business being run by his clients, there was a dispute between the "owners" and an irretrievable breakdown of relationship. He referred to the existence of the Trust and that it was a unit trust, and to some of the assets and liabilities. It was arranged that there would be a joint meeting in the following week.
51 On 29 April 2005, the directors of the Company (Sheela Tiwari and Pradeep Tiwari) resolved "[t]hat in the opinion of the Directors the Company is likely to become insolvent at some time in the future" and further resolved that the Company appoint joint administrators. On the same date the Company appointed Messrs Vince and Horne as joint administrators pursuant to s.436A of the Act and Messrs Vince and Horne accepted that appointment.
52 It was common ground that as at 29 April 2005, the CBA had demanded the repayment of its secured facilities by 30 June 2005 and that this provided justification for the opinion of the directors that the Company was likely to become insolvent at some time in the future. In addition, it would seem that the directors may have had in mind the existence of claims exceeding $1M in total by employees (including themselves) based on the Crossroads report.[12]
53 It is to be noted that the administrators, once appointed, had control of the Company's business, property and affairs. They were entitled to carry on the business and manage its property and its affairs and were further empowered to dispose of all or any part of the business or property of the Company.[13] In addition, all powers of the Company's directors were suspended during the administration[14] although they were not removed from office.[15]
54 Further, as soon as practicable after the administration of the Company began, the administrators were obliged[16] to:
"(a) investigate the company's business, property, affairs and financial circumstances; and
(b) form an opinion about each of the following matters:
(i) whether it would be in the interests of the company's creditors for the company to execute a deed of company arrangement;
(ii) whether it would be in the creditors' interests for the administration to end;
(iii) whether it would be in the creditors' interests for the company to be wound up."
55 According to the plaintiff he had a meeting with Mr Vince on 29 April 2005 in which he "explained the circumstances of how my business was suffering at the hands of [Sheela Tiwari and Pradeep Tiwari] and asked him how he could help save the haemorrhaging" and that Mr Vince assured him that he would look into all matters and take appropriate action. The plaintiff says that he raised the issues of conflict of interest and the diversion of business to Tiwari & Co and expressed his wish to join in the day to day running of the business. The plaintiff deposed that Mr Vince asked him to make a written submission which would enable him to consider the matter and would at least give him "the" reason "not to leave [Sheela Tiwari] in charge of running the business".
56 Mr Chivers, an employee of the administrators' firm, kept notes of this meeting on 29 April 2005 at which Mr Vince, the plaintiff and his then solicitor Andrew White were present. The meeting went for one hour and twenty minutes. It was said by or on behalf of the plaintiff that the business was a good business, that it could possibly be maintained on a going concern basis and that recent transactions should be investigated including increased wages paid to Tiwari family members, payment of legal costs of $200,000 to Velos & Davis, and the Velos & Davis demand for $146,000. Mr Vince said he would look at the staff required and the wages - he would not take on high wage costs as administrators were personally liable. The plaintiff said he wanted to be back in the control and management of the business. He was happy to work with Sheela Tiwari's agent or whoever she employed. Mr White said something about a partnership dispute, that administrators' fees had to be met from the business which needed to be run profitably, that Sheela Tiwari was running the business at the moment with her son, that the wholesaling and importing part of the business had been taken over by the son's company but query whether it was for adequate consideration. The administrators could review these arrangements. Mr Vince raised a number of topics: list of creditors; taking control of records and assets; examine liabilities presently being accrued; Sheela Tiwari to do a RATA; what was the future of the business and the properties; could they be offered for sale in the market place or closed down and sold; was there some basis to carry on a business under a DOCA. Somebody said that the business was quite profitable and supported by family members. Reference was made to the Point Cook property in Sheela Tiwari's name, the Company's business loan for $200,000 towards its purchase and the Company paying $1,600 per month on that loan and that the Company would have an interest in the Point Cook property. Mr Vince said that Sheela Tiwari needed to act honestly. The plaintiff said that she could not be trusted to run the business. Mr White asked whether anyone who was independent could run or manage the business. Mr Vince said the administrators would review this. The plaintiff spoke of an official submission to manage the business for say $70,000 a year. Mr Vince said they would have to make an assessment of this. The plaintiff expressed concern about the withdrawal of cash by Sheela Tiwari; various amounts were mentioned. The plaintiff said this cash was not for suppliers, some of it went to Sheela Tiwari's accountant and lawyers. There was some discussion of the value of the business and the real estate. There was some discussion initiated by Mr White of a mediation and one party buying the other party out. He also referred to a risk management issue - namely having Sheela Tiwari working in the business. Mr Vince mentioned maybe offering the properties and the business for sale. There was further discussion about the overall financial position and various options open. The plaintiff said that the wage claim developed by David Mond was a liability deliberately created effectively making the Company insolvent and without which the Company would be solvent. Mr White suggested that it was more of a caretaker administration, maintain the status quo of the business (maybe trade under a DOCA) as opposed to a quick sell-up of assets. There was discussion of the potential of a DOCA. There was reference to possible sale of the Hillside property and the plaintiff said he would be happy if that be sold, but not the Footscray property or the business. However it was mentioned that the plaintiff had caveats over the property. Finally, it was said that the plaintiff would put in a submission to run the business to Mr Vince and to possibly remove Sheela Tiwari.
57 The plaintiff provided an 11 page written submission to the administrators on 3 May 2005. The submission opened by the plaintiff stating that he owned 50% of the units in the Trust and 50% of the shares in the Company acting as trustee for the Trust, giving him an equal 50% stake in the two properties and the business. He then said that he was convinced that Sheela Tiwari was not acting in the best interests of the Trust and the Company and should not be allowed to have exclusive control of the business "which is mainly cash". He submitted that he should be appointed a director (or co-director) so that he could participate in the management of the business and thereby safeguard the interests of the Company, that Sheela Tiwari and Pradeep Tiwari should be removed from their position as directors because there was a clear conflict of interest and that appropriate action should be taken against them for "hurting the commercial interests of the company for the sake of their personal and family fortunes". The plaintiff then set out reasons why he was the best person to run the business dealing with such matters as the role he had played in establishing and running it and his depth of experience in its management. The plaintiff then set out reasons why Sheela Tiwari and Pradeep Tiwari should be removed as directors forthwith. He referred to the purchase of the Point Cook property using Company funds and assets, the removal of cash from the business, the use of Company moneys to fund the defence of the first Supreme Court proceeding and the diversion of business to Tiwari & Co. Finally the plaintiff set out how he would run the business while waiting for the appeal to be heard.
58 On 3 May 2005 there was a meeting with Messrs Vince, Horne and Terence Petersen ("Petersen")[17] which was attended by the plaintiff, his then solicitor Mr Andrew White, Pradeep Tiwari, Markandey Tiwari, the Tiwaris' solicitor Mr Vijay Kooblal and the accountant David Mond.
59 According to the plaintiff, at this meeting, the Tiwari side expressed the view that the administrators should sell off all Company assets as soon as possible. Mr Mond told the meeting that the CBA would like to be paid by 30 June 2005 and that the administrators had been appointed to liquidate the Company as soon as possible so that the parties could part company permanently. On the other hand Mr White told the administrators that theirs was a very unusual appointment and they had not been appointed to liquidate anything, but to preserve the status quo, to look into the affairs of the Company and assess the true health of the Company. Mr White asked them to remove Pradeep Tiwari and appoint the plaintiff as a director pending the hearing of the appeal. The plaintiff told the administrators that the Tiwaris were in a hurry to kill the Company in order to get on with their own business which had assumed control of the wholesale side of the Company's business. The plaintiff told the administrators that he would not let any assets go up for sale and would like to look at refinancing the CBA facilities. Mr White told the administrators that they ought first to investigate the solvency of the business and investigate all transactions involving the Tiwari family members.
60 By letter dated 2 May 2005 the administrators advised the creditors of the Company that the Company had been placed under administration and that they had been appointed joint administrators on 29 April 2005. The letter generally advised the creditors of the nature of administration and convened the first meeting of creditors pursuant to s.436E of the Act to be held on 6 May 2005. The letter further advised creditors that:
"The Administrators are presently reviewing the company's activities to enable them to provide an opinion on the company's future. Further information will be available in respect of this matter at the meeting.
It is our present intention to carry on the company's activities and to continue trading. The co-operation of all creditors is sought in supplying goods and services.
Please open a new account styled "Administrators' Account". Goods will not be paid for unless supplied against an official order only under the signature of P.R. Vince, S.L. Horne, T. Petersen or D. Juratiwich. Under the provisions of the Corporations Act 2001, we accept liability for payment of goods and services properly authorised and incurred during the administration. Suppliers can be assured of payment within accepted trading terms.
...
It is intended for the remuneration of the Administrators and their staff to be fixed on a time basis at the levels appropriate to the nature and complexity of the work and calculated by reference to the hourly rates prescribed by Bentleys M R I Melbourne for work of this nature. ..."
61 An explanatory memorandum concerning voluntary administration was enclosed with the above letter to creditors.
62 On 3 May 2005 Mr M Chivers attended the Footscray property and was there for some 4 hours. He obtained some financial records but Pradeep Tiwari advised him that most of the books and records were held by Velos & Davis. He downloaded accounting material from the Company's computer. He attended to a stocktake which was mostly completed in his presence but was left to staff (Pradeep Tiwari) to finish. He asked Pradeep Tiwari to prepare a list of all outstanding creditors, which was subsequently collected. Mr Chivers noted that the Company's computer accounting system had entries done up until September 2004 but no entries had been done since then.
63 By letter dated 4 May 2005 from the plaintiff's then solicitors Serry White & Co to the administrators the plaintiff's stance was reiterated. The solicitors' letter further stated that they were concerned about the cash nature of the business and if the administrators were not prepared to appoint the plaintiff as the manager of the business, they should appoint an independent manager. The letter stressed the preservation of the status quo of the business pending the hearing of the appeal.
64 On 4 May 2005, Pradeep Tiwari provided the administrators with a copy of the Crossroads Report.
65 The first meeting of creditors was held at 10.30am on 6 May 2005 at the offices of the administrators' firm. The minutes may be summarised as follows (although it is clear from notes of Mr Chivers that there was somewhat more discussion than appears from the minutes). Mr Vince chaired the meeting. Mr Vince reported to the meeting that he and Mr Horne were appointed as joint administrators on 29 April 2005 as a result of an ongoing dispute between Sheela Tiwari and the plaintiff. Mr Vince referred to the nature of the business of which they had taken control. He said that the importing and wholesale aspect of the business would be investigated and then referred to a number of matters relevant to the financial position and affairs of the Company. He said that the CBA intended to cease its banking relationship with the Company prior to the end of June 2005 and had indicated that it would proceed with calling up its security and taking possession of the Footscray property. He said that expressions of interest might be sought for the Company's business. He said that the major issue was preserving the Company's business. The administrators were happy to listen and think through what parties had to say. He said that the business should be continued, maybe even under independent management and possibly offered for sale.
66 Mr Kooblal told the meeting that the Tiwari family was concerned about payment of the Company's creditors and that, further, whilst the family was best suited to run the business they presently lacked commitment under the circumstances. He said that Sheela Tiwari was happy to continue assisting to operate the business although she was concerned about the 50% competing interest in the business. Pradeep Tiwari said he was concerned about the Company's creditors as some creditors had stopped supplying the Company. A committee of creditors was appointed comprising Mr S Gupta, Mr David Mond, the plaintiff and Mr Kooblal.
67 At the first meeting of creditors, according to the plaintiff, Mr Vince said that the administrators were moving to a position where they were seeking expressions of interest in the business and that the Footscray property should also be offered for sale and that Mr Vince said that the business had reported weekly takings of about $15,000 and spoke about the losses that the business was suffering.
68 On 10 May 2005 Pradeep Tiwari was informed by Petersen that the administrators proposed to pay wages to the Tiwaris, commencing as from 29 April 2005, with a gross salary including superannuation. After some negotiation with Pradeep Tiwari, the wages and personnel were agreed as follows:
1. Pradeep Tiwari $1,200 per week (full-time)
2. Raghupati Shukla $1,100 per week (full-time - 5 days)
3. Sheela Tiwari $1,300 per week (full-time)
69 Shortly thereafter, Petersen informed the plaintiff that the administrators had offered "re-employment" to the Tiwaris for a total of $3,600 per week. The plaintiff, accompanied by Mr White, then had a meeting with Mr Vince. The plaintiff expressed his shock and disappointment at the fact that the Tiwaris had been offered re-employment with the business. According to the plaintiff, Mr Vince told him that the Tiwaris were there until the administrators could find an independent person to manage the business and it was only a short-term arrangement. I accept that Mr Vince probably told the plaintiff that the employment of the Tiwaris was only a short-term arrangement because, as the evidence shows, Mr Vince anticipated that the business might be sold or if it was not that there would be a deed of company arrangement resolving all relevant matters and disputes. Although Mr Vince did not in any affidavit deny saying to the plaintiff that the Tiwaris were there only until the administrators could find an independent person, this topic was not canvassed in oral evidence and I find it unlikely that he would have said this. However, it may well be the case that he mentioned that the administrators were still contemplating the possibility of employing an independent manager.
70 At the meeting with Mr Vince, the plaintiff also sought Mr Vince's response to his submission and Mr Vince said he would look into all matters and respond "soon". They discussed a number of other matters arising in the administration.
71 Mr Vince deposed (in an affidavit sworn 1 September 2005) that the administrators ascertained that the children of Sheela and Markandey Tiwari were employed by the business and had been remunerated by distributions from the profit of the Company as opposed to regular wage payments. Mr Vince deposed that:
"Mr Horne and I continued to employ Sheela Tiwari and certain members of her family in the management of the business primarily because of their knowledge of the daily operations of the business and their relationships with its suppliers, as well as the fact that Mrs Tiwari and her family were already resident at the premises. Mr Horne and I agreed that remuneration totalling $3,600.00 per week (including statutory superannuation entitlements) should be payable to Mrs Tiwari and her family. We decided upon that figure based on the operating hours of the business (9am until 9pm seven days per week) and on the basis of the prevailing market rates for similar works."
72 In his oral evidence, Mr Vince said that it was their "commercial decision" to employ members of the Tiwari family in the business. Mr Vince said that the administrators had made that decision after consulting with Petersen and they had relied on Petersen's observations of the operation of the business in making their decision. Mr Vince said that they had decided to maintain the status quo for the reasons stated in his affidavit, for reasons of stability and preservation of the business and to maintain its going concern value. Mr Vince said that the Tiwaris had the knowledge of the daily operation of the business, the recent relationship with suppliers and they also "happened to live there". Mr Vince added that it was difficult to see how someone else could have operated the business with the Tiwaris still living there, so they would have had to be removed from the premises.
73 Mr Vince also said that the administrators "weren't meant to be heroes". He explained this by saying:
"The Tiwaris were also occupants in the domestic premises and any thought that we may have given to removing them from the business would also have entailed us in effectively kicking them out of the domestic premises. That could have taken some considerable time. They had the recent experience and the recent dealings with suppliers. To have removed them from the business - we weren't sure how long the business was to be conducted. We were hopeful that it might have been sold but it would have involved very considerable disruption. It wasn't a choice between one unit holder and the other unit holder."
74 Mr Vince added, in effect, that it was not so much removing them from their house but the process involved - "the length of time over which that would have occurred and the impact on the business itself."
75 Mr Vince said that the administrators thought at that time that there was scope for a reasonably early resolution, that is, a proposal from one or other of the parties for a DOCA or alternatively for an agreement for the sale of the business. Mr Vince said that if there was no DOCA, the administrators were looking for a sale of the business, to maximise realisation for the Company and its creditors.
76 Mr Vince added that some consideration was given by them at the time to appointing an independent manager who would have had to be underpinned by support staff, but they thought that the reasonably short term involved did not justify contracting with an independent manager.
77 Mr Vince said that he understood from the judgment of Balmford J that Sheela Tiwari was an unreliable witness and he had taken that into account as well as taking into account the grave doubts expressed by Balmford J as to the plaintiff's credibility.
78 Mr Horne testified that he did not regard it as foolhardy, given the animosity between the Tiwaris and the plaintiff, to entrust one side with the continued operation of the business. He agreed that the integrity of the reporting of cash receipts was important but thought that the systems put in place were sufficient. He said that the administrators realised that sales could be made without using the cash register but that they reviewed margins to make sure that the margins stayed about where they should be.
79 Notwithstanding that the powers of directors are suspended while a company is under administration, the plaintiff's then solicitors again wrote to the administrators by letter dated 10 May 2005 requiring their "urgent response" in relation to the appointment of the plaintiff as a director and the removal of Pradeep Tiwari as a director of the Company and seeking a response by no later than 13 May 2005. On 12 May 2005 the solicitors wrote again to the administrators asking for copies of a variety of company documents.
80 On 11 May 2005, Petersen met Pradeep Tiwari at the Hoppers Crossing property in order, as expressed in Petersen's handwritten notes, to examine to what extent Tiwari & Co Pty Ltd or Pradeep Tiwari had divested the business of its wholesale and import side and whether any property, assets or funds of the Company were used to acquire the Hoppers Crossing property or to conduct the business there. Pradeep Tiwari told Petersen that the acquisition of the Hoppers Crossing property was fully financed by the ANZ and that the ANZ continued to support the Tiwari family. Petersen observed and photographed a substantial quantity of stock. Petersen noted the following conclusions:
"There is perhaps little doubt that Tiwari & Co Pty Ltd operates a wholesale/importing business from the premises and that the business is similar to the wholesale and importing activities which would otherwise have been undertaken by S & D International.
The Tiwari & Co business appears however to be more substantial than what would have otherwise have been the activities of S & D International.
There would not be sufficient space at Footscray to store the same quantity of goods.
Tiwari & Co is supplying goods to the same or similar customers as those supplied to by S & D. Tiwari & Co has however added to its customer base with [illegible] ... customers.
Supplies are generally imported from India. Tiwari & Co say they have a new Indian supplier.
S & D has done no importing in the last 12 months whereas Tiwari & Co has received at least 4 containers.
It does not appear that any assets of S & D were used by Tiwari & Co to establish its business ...
The business is trading for less than 12 months - accordingly there is no financial information available.
[Petersen] was asked not to take pictures ..."
81 On 13 May 2005 the administrators wrote to the plaintiff as follows:
"It has come to the attention of the administrators that you propose to enter the company's premises at 580 Barkly Street, Footscray.
You are reminded that Mr S L Horne and I were appointed Joint Administrators of the company. The Administrators have control of the company, business and affairs by virtue of s.437A(1) of the Corporations Act 2001 (Cth).
Any requests on your part to enter the premises without a Court Order granting you access to such premises is expressly denied."
82 I interpolate that, in my view, the administrators' stand was correct in law. However, the plaintiff's first affidavit (of 18 August 2005) maintained that the administrators were "stopping me from exercising my right of possession and enjoyment of my property at 580 Barkly St, West Footscray as an equal Unit holder of the Trust property" (emphases added).
83 Further, the administrators were required to convene the second meeting of the Company's creditors within the period, for present purposes, of 21 days beginning on the day when the administration began.[18] Thus, the administrators were obliged to convene the second meeting of creditors no later than 19 May 2005. The meeting had to be held within 5 business days after the end of the convening period,[19] that is, no later than 26 May 2005. It is thus to be noted that, apart from any extension of the convening period or of the time for holding the meeting, the administrators had, under the Act, only from 29 April 2005 until 19 May 2005, or, at the latest 26 May 2005, within which to investigate the affairs of the Company and form the opinions required by s.438A of the Act.
84 As it happened, the administrators convened the second meeting of creditors for 26 May 2005 by notice given on 18 May 2005. The administrators forwarded a letter dated 18 May 2005 to the Company's creditors and enclosed with that letter the notice of meeting, a proxy form, a proof of debt for voting purposes, a proposed agenda, a report by the administrators ("the administrators' first report") and a list of creditors.
85 The administrators' first report was 19 pages in length and I have considered its full contents. It is convenient to note the following salient features of the report.
86 In relation to registered charges, the administrators reported that the assets of the Company were encumbered by a first-ranking fixed and floating charge registered by the CBA and a second-ranking fixed and floating charge registered by the ANZ, and that the CBA's security was supported by a mortgage registered on the titles to the Footscray and Hillside properties. They further noted that the ANZ claimed to hold unregistered mortgages over the Company's property and cross-collateral security over the Point Cook and Hoppers Crossing properties.
87 The administrators' first report dealt with the background and history of the Company and of the first Supreme Court proceeding. They noted that until recently the business had imported Asian products, predominantly from India and that the products were sold either through wholesale consignments or through the retail premises of Footscray. The report provided a summary of turnover and operating profits extracted from financial reports prepared by David Mond & Associates as follows:
88 The administrators reported that, upon their appointment, they entered into possession of the Company's assets and continued the Company's activities with a view to maximising the going concern value of the business. They said that they were presently seeking expressions of interest for the sale of the business as a going concern and that advertisements for expressions of interest would be published in certain newspapers and that they expected to be in a position to advise further after offers closed on 10 June 2005. They also reported that both Sheela Tiwari and the plaintiff had indicated separately that each was in the process of preparing a proposal for the affairs of the Company to be dealt with under a Deed of Company Arrangement ("DOCA") and that both of them had sought an extension of time in order to give the matter due consideration. The administrators said that in the circumstances it might be appropriate to adjourn the second meeting of creditors so that creditors might receive details of those proposals. The administrators said that in the meantime they were proceeding with the sale of the Hillside property.
89 The administrators' first report went on to deal with the financial position of the Company as at 29 April 2005 and, based on their investigations, the report sets out tables of assets and liabilities together with detailed notes thereon. The report seemed to show that the Company had a deficiency of some $900,000, even if the assets (net of secured liabilities) were to be valued on a going concern basis, having regard to the existence of over $1m worth of unsecured creditors.
90 The financial position of the Company was and is somewhat complex and it will be necessary to deal separately with that topic. It is sufficient to note at this point that the administrators' first report outlined a multiplicity of claims including claims by the solicitors Velos & Davis for legal fees and by members of the Tiwari family for unpaid wages. The report also refers to a number of issues raised with the administrators by the plaintiff that they describe as "complex" and that "may warrant substantial further investigation which could not be concluded within the time constraints under the provisions of" Part 5.3A of the Act. Those issues related to the alleged establishment of a new entity competing with the business of the Company and the withdrawal and/or use of substantial funds of the Company by the Tiwari interests for various purposes unrelated to the Company and its business.
91 In relation to the business, the administrators said that they had continued to trade with a view to stabilising the business and maximising its going concern value but that:
"Based on [a] preliminary assessment of the available information it appears that that company is not generating sufficient revenue to meet its trading expenses and the company will trade at a loss of approximately $2,325 per week. Accordingly, the Joint Administrators are unlikely to continue to trade the business for an extended period."
92 The administrators noted that the Company was achieving a gross margin of 15% of turnover whereas historically it had achieved a gross margin of around 20% of turnover, but that "[d]ue to the decline in the business overall and increased competition from other similar local businesses, the business has had to reduce prices and offer customers incentives to generate sales and maintain stock turnover." The administrators further noted that they had retained the services of three members of the Tiwari family including the directors, Sheela Tiwari and Pradeep Tiwari, and agreed on a total salary of $3,600 per week (plus accommodation). The total salary was included in the operating expenses, thus contributing to the estimated trading loss.
93 Towards the end of the administrators' first report, they turn to their opinion as to the alternative courses of action referred to in s.438A of the Act. In relation to a possible DOCA, the administrators expressed the opinion that it was appropriate to adjourn the meeting in order to allow time for any proposals to be completed and considered. They listed a number of matters which any such proposal would have to address. In relation to whether the administration should end, they said:
"If creditors resolve the administration should end, the control of the company will revert to the directors. In opinion of the Joint Administrators it is not appropriate for the administration to end because this course of action will not solve the company's problems nor provide a forum for dealing with creditors' claims or the competing claims of the litigants."
94 In relation to whether the Company should be wound up, the administrators noted that the creditors might resolve that the Company be wound up and that they be appointed liquidators. They expressed the opinion that it was not in the best interests of creditors that the Company be wound up "at this time" in substance because creditors should be given the opportunity to consider any proposal for a DOCA. The administrators therefore recommended that the meeting be adjourned for a period of three weeks, that is, until 16 June 2005.
95 I interpolate here that it seems to me, on the face of it, that these opinions expressed by the administrators in their first report were then reasonably open to them. It was reasonably open to them to consider that the alternatives facing the creditors in the circumstances appeared to be either a suitable DOCA or a winding up. It was reasonably open to the administrators to think, as they did, that returning the Company to the control of its directors could not be in the interests of creditors because that would have left unresolved the various disputes about creditors' claims and the many allegations made by the plaintiff in relation to the conduct of the Company and the business by its directors. Additionally (although they do not directly refer to this aspect), there had been a complete and irretrievable breakdown in the business relationship between the persons who (subject to any reversal by the Court of Appeal) had been held to be equal unit holders in the Trust, such that it was reasonably open to the administrators to consider that such return of control to the directors would be a recipe for further conflict that would not be conducive to successful operation of the business or to payment of the Company's debts.
96 Finally, the administrators' first report concludes by setting out a summary of their activities from 29 April 2005 to the time of the preparation of the report. Having regard to the allegations of misconduct made by the plaintiff against the administrators it is relevant to note the substantial work which the administrators reported that they had performed in that period of just under three weeks, which they listed as follows:
"Since the appointment the Joint Administrators have attended to the following:
• Reviewed the company's assets, liabilities and premises.
• Interviewed the directors.
• Undertook the requisite investigations required to prepare and complete this report in accordance with Section 439A(4).
• Meetings and correspondence with the company's secured creditors, being the CBA and the ANZ pursuant to Section 450A.
• Liaised with suppliers to establish supply to the company and dealt with procedural issues.
• Arranged the transfer of the company's merchant facility to the Joint Administrators' account.
• Arranged for funds to be transferred from the company's bank account to the Joint Administrators' account.
• Implement and monitor controls over daily cash takings and banking.
• Implement controls over purchase orders for approval of stock purchases.
• Monitored the trading and financial position of the company's business since the date of appointment as Joint Administrators.
• Negotiated appropriate wages to be paid to the company's employees.
• Called two creditors meetings to date.
• Arranged meetings between the Tiwari Family and Mr. D. Malhotra and their respective legal representatives.
• Attended to all statutory matters in relation to the administration including notification to all creditors and government bodies.
• Attended to day to day queries and administration issues in respect of the likelihood of recovering undue preferences in the event of liquidation and also of insolvent trading.
• Attended to and observed stocktake, including calculating and collating the stocktake and conducted subsequent testing of the integrity of the stocktake.
• Instructed Dominions in respect of a valuation of the company's plant and equipment and assessment of the value of the company's stock under a forced sale scenario.
• Instructed Sutherland Farrelly Valuers in respect of a valuation of the company's business and freehold property located at 580 Barkly Street, Footscray, the company's property located at 45 Boronia Drive, Hillside.
• Liaised with valuer in relation to market rental and possible lease in respect of the Footscray property.
• Prepared a budget forecast for the business.
• Liaised with our insurance broker in relation to the company's existing insurance cover and further insurance needs, to ensure adequate insurance cover is in place.
• Advertised for expressions of interest in respect of the company's business and freehold property.
• Sought independent legal advice in relation to the validity of Mr. Velos' security.
• Sought independent legal advice in relation to the Joint Administrators' obligations under the Supreme Court orders.
• Correspondence and meetings from time to time with the company's directors, legal and accounting representatives.
• Correspondence and meetings from time to time with Mr. Malhotra and his legal representatives to consider a submission from Mr. Malhotra in relation to the operation of the business.
• Attended the property at Hoppers Crossing in order to determine the nature of the business and assess the level of business activity.
• Reviewed the company's records in relation to video deposits paid by customers in order to estimate the company's potential exposure to its customers."
97 At that juncture the administrators said that their total professional fees to 18 May 2005 were $61,883.36. The total amount claimed is perhaps not surprising given the work said to have been performed and the context of continuing litigation and of many claims and disputes. Appended to the administrators' first report was a list of creditors.
98 The plaintiff reacted to the comments of the administrators' first report by a letter to the administrators prepared by the plaintiff's present solicitors dated 23 May 2005. In that letter the solicitors on behalf of the plaintiff expressed grave concern as to various matters contained in the first administrators' report. The solicitors said that they were "clearly of the view that the administration is not being conducted in a manner that is consistent with the best interests of the Company, its creditors and shareholders and the unit holders of the Trust". They said that the paramount duty of the administrators was to investigate the affairs of the Company and to consider possible courses of action pursuant to s.438A of the Act. The solicitors said that, as the administrators were not then in a position to form a view as to the possible courses of action set out in s.438A of the Act, it was premature for the administrators to be seeking expressions of interest in relation to the sale of the business as a going concern or proceeding with the sale of the Hillside property. The solicitors said that if the Company was solvent, the only proper course of action was to recommend that the administration be terminated. The solicitors said that the plaintiff was of the firm view that the Company and Trust were solvent and that a proper investigation of their affairs would bear this out in due course. They added that the administrators were appointed in the context of a pending appeal in the first Supreme Court proceeding and in order "to preserve the status quo pending the determination of the appeal." The solicitors said they were instructed to apply for injunctive relief if the joint administrators did not undertake to refrain from their threatened course of conduct.
99 I note that the solicitors, in contending that none of the assets of the Company should be sold because it might be appropriate in due course to terminate the administration, failed to deal with the passage in the administrators' first report in which the administrators expressed the opinion that it was not appropriate for the administration to end because that course of action would not solve the Company's problems nor provide a forum for dealing with creditors' claims or the competing claims of the litigants. Further, the solicitors' letter suggested that a "proper investigation" of the affairs of the Company and the Trust would bear out "in due course" that the Company and the Trust were solvent. These views, as expressed by the plaintiff's solicitors, suggested that they had in mind a duration for the administration which permitted of a lengthy investigation and which would also await the hearing of and judgment in the appeal in the first Supreme Court proceeding. But the plaintiff and his solicitors did not suggest that any extension of the periods laid down in Part 5.3A of the Act ought to be sought from the Court. However, the continuation of the administration for an extended duration would have involved the Company and the Trust in continuing heavy costs which, as the plaintiff shortly thereafter recognised, was not in his interests, let alone in the interests of the creditors.
100 By letter to the plaintiff's solicitors dated 24 May 2005 from Madgwicks, the solicitors for the administrators, the administrators refused to give the undertakings sought by the plaintiff's solicitors' letter of 23 May 2005.
101 On 24 May 2005, the Court of Appeal fixed the date for hearing of the appeal in the first Supreme Court proceeding for 28 July 2005.
102 As appears from the plaintiff's first affidavit, the plaintiff at this stage formed the view that the continuing substantial costs of the administration were not justified from his point of view, having regard to the courses of action taken and being proposed by the administrators. As a result, the plaintiff's solicitors wrote an "extremely urgent" letter to Sheela Tiwari's solicitors, BTK, on 25 May 2005, setting out the plaintiff's position at length. The letter accused Sheela Tiwari of repudiating the basis upon which the administrators had been appointed (namely, to preserve the status quo) by pushing for the liquidation of the assets of the Trust in order "to deprive our client of the fruits of judgment in the event that the appeal was dismissed". The plaintiff's solicitors commented that, given that Sheela Tiwari was indebted to the plaintiff for legal costs, which were likely to exceed $500,000, and was also liable to disgorge one-half of the net profits derived from the business, which were likely to exceed $300,000, Sheela Tiwari's "half equity in the assets of the Trust would be entirely diluted once she discharges her liability to our client in respect of costs and damages [and], in real terms, your client has no effective 'net equity' left in the assets of the Trust unless she is successful in the appeal." The plaintiff's solicitors proposed that there be a joint application either to remove the administrators or to restrain them from liquidating the assets of the Trust or convening any further meeting of creditors and that, if they agreed to such an application, the plaintiff was prepared to permit Sheela Tiwari to continue to run the business pending the hearing of the appeal. No response was received to this letter.
103 By letter dated 24 May 2005, David Mond & Associates placed before the administrators a proposal for a DOCA on behalf of "a group of investors". The letter asserted that the essential facts were:
"1. The Company was trading profitably, on the basis that the Tiwari family would retain a 100% interest in the business and by them accepting well below market value wages, as employees of the business.
2. Over the last 12 months, the "activities" of Dinesh Malhotra have lead to a loss of suppliers and disenchantment and loss of customers.
3. The arms-length assessment of wages for employees of the business with operating hours of 9.00am to 9.00pm seven days per week means that the true net profit is zero.
4. The Tiwari family are the owners of the Goodwill, that is, their personality and service are inexorably linked to the success of the business. There is no Corporate Goodwill.
5. The premises of 580 Barkly Street Footscray are unsatisfactory for long term occupation and in need of repair.
6. The Tiwari famly live on the premises and have a residential tenancy entitlement to live there.
7. The ANZ and CBA are owed substantial debts and the business property secures that debt ($450,000).
8. There is currently on foot an appeal to the Full Court of Appeal. The proper course for the Administrator is to pay 50% of the costs of the Appeal as:
a) There is a contingent debt of $150,000 to Velos and Davis.
b) The Tiwari interests are 50% equity holder of the Unit Trust.
9. The Report by the Administrator dated 15 May 2005 states the business is now unprofitable, based upon margins and the cost of wages and overheads.
10. The Administrator is currently not paying rent. Any purchasers of the business will either be required to enter into a lease of some $50,000 p.a., or purchase the building valued by Sutherlands at $500,000 (plus stamp duty). Any lease entered into by the Administrator will limit the potential market value of the 580 Barkly Street property and only investors will be interested prospective purchasers."
104 The letter from David Mond & Associates went on to refer to the alleged entitlements of the directors and their relatives for wages and associated payments. The letter suggested, based on the Crossroads Report, that a total of over $1M was owing to the members of the Tiwari family who had worked in the business from 1 July 2000 to 30 April 2005. The "offer", in essence, was to take over the real estate and the business of the Company, and the liabilities to the Banks and to Velos & Davis and to pay $160,000 in cash.
105 The second creditors' meeting was held on 26 May 2005 and was chaired by Mr Vince. Mr Vince presented the administrators' report and spoke to the report. Mr Vince said the administrators were seeking expressions of interest for the sale of the business as a going concern or for a combined sale of the business with the Footscray property and they had taken steps to put the Hillside property on the market, as a result of the CBA's decision to exit the Company. Mr Vince said that the Company's total assets were estimated at approximately $200,000. Mr Vince said that a number of issues had been brought to their attention by the plaintiff and investigations into them were continuing. He said that the business was trading at a loss of about $2,000 a week and they were continuing to trade in order to preserve the Company's assets, but were concerned about the costs of the administration dissipating the assets of the Company. Mr Vince said that if the administrators were to make an application to the Court to extend the adjournment period, further costs would be incurred. He said that their investigations were continuing into the claim of Velos & Davis for legal fees which might be void as against the Company and in relation to the payment to Mrs Tiwari of $137,287 being payment to discharge the beneficiary loan account. He said that the administrators' investigations might extend beyond unfair preference and voidable transactions. He said that a proposal for a DOCA had been received from the Tiwari family.[20]
106 Mr Vince said that the administrators recommended the meeting be adjourned to 16 June 2005 in order to provide sufficient time for DOCA proposals to be considered by them.
107 Questions were then taken from the floor. Mr Selimi attended the meeting on behalf of the plaintiff and Mr Selimi suggested that the meeting be adjourned for a period of 60 days. A debate then took place, through and with the chair, with Mr Selimi speaking for the plaintiff and Mr Kooblal, and apparently Mr Mond, speaking for the Tiwari interests. Mr Vince pointed out that the business was operating at a loss. There was a continuing exposure to secured creditors, there were employee claims and there was a claim by Velos & Davis. Mr Selimi said that his client was concerned about the costs of the administration and also that the plaintiff intended to put forward a proposal for a DOCA "after the appeal". Concerns were expressed and questions asked about the sale of Company assets. Mr Selimi said that the plaintiff wanted an adjournment for 60 days and that an application would then have to be made for an extension of time beyond the hearing date of the appeal. Mr Vince said that a three week adjournment was sufficient. Mr Selimi said that the problems between the parties would not be resolved if the administration ended and that the regrettable fact was that the only forum to resolve matters was the Court unless the parties could come to some form of agreement. The meeting approved (without dissent) payment to the administrators of remuneration to 18 May 2005 in the sum of $61,883.36 and it was resolved (again without dissent) that the meeting be adjourned to 16 June 2005.
108 The plaintiff's solicitors forwarded a 10 page letter to the administrators dated 31 May 2005 again marked "extremely urgent". The solicitors stated at the outset that in their view the administrators had not conducted the administration in a fair, proper and transparent manner and had not discharged their duties under the Act. They said that the Company and the Trust were solvent and that the administration should be terminated. They referred to as "nonsensical" what they described as the administrators' "extraordinary suggestion that the administration should continue because it provides a forum for dealing with competing claims of creditors and the Unit Holders." They said that the only proper forum for such disputes was the appropriate court. I interpolate that these comments seem to have misunderstood what the administrators were intending to convey. The administrators were not saying that the administration was an appropriate forum for the resolution of such disputes. I think that what the administrators were saying was that the appropriate course was either a suitable DOCA or, in the absence of a DOCA, liquidation. Thus relevant disputes would be dealt with or encompassed within a DOCA, or otherwise would be determined in the course of a liquidation.
109 The plaintiff's solicitors' letter dated 31 May 2005 raised numerous other matters and reiterated at length a number of the plaintiff's continuing allegations and complaints. The administrators were informed that the plaintiff had secured finance to cover the CBA debt. The administrators were asked to undertake not to sell any of the Company's assets prior to determination of the appeal. The letter also referred to the alleged right of the plaintiff "to possession of the home at which he resided prior to being locked out by the other co-owner in equity." Ignoring the rights of creditors in the administration, the letter charged the administrators with a "misconceived" attempt to exclude the plaintiff from the assets and claimed that "our client is the effective equitable owner of the entire assets of the Trust after taking into account the debt personally owed by Sheela Tiwari to our client" and concluded that "the reality of the situation is that all of the property which is currently under your legal control, equitably belongs to our client". The letter threatened proceedings against the administrators.
110 Further on 31 May 2005 the plaintiff himself wrote two letters to the administrators. The first letter referred to his working on a proposal (presumably for a DOCA) and requested financial information. The second letter was eight pages in length and raised a number of matters arising out of the administrators' first report. Arising out of those letters, a meeting was held between the plaintiff and Mr Vince later that day.
111 In early June 2005 there was further correspondence[21] and a meeting between the plaintiff and the administrators or their representatives. At the meeting the plaintiff referred to the alleged movement of stock from Footscray to Hoppers Crossing and video surveillance thereof by an investigator, and to other transactions which required investigation.
112 The administrators prepared a further report dated 7 June 2005 (the administrators' second report). The administrators' second report stated that they had sought expressions of interest for the sale of the business and received five responses seeking further information. They stated that the Hillside property was listed for sale at public auction on 25 June 2005. They referred to details of the CBA debt and the securities held by the CBA. They said that the business was trading at a loss and that they were not in a position to continue to trade the business for an extended period as the trading losses would erode the value of the Company's assets.
113 The administrators' second report then referred in detail to their investigations of specific transactions (including the purchase of the Point Cook property and numerous cash withdrawals from Company funds).
114 Without purporting to summarise all of the transactions considered by the administrators in this report, I note the following. The administrators concluded on the basis of the information available to them in relation to the purchase of the Point Cook property that the Company might be entitled to an equitable interest in the property. The administrators referred to the amount of approximately $100,000 spent by Sheela Tiwari to purchase motor vehicles for her children and the report states that Pradeep Tiwari advised them that the motor vehicle purchases were made in lieu of unpaid wages.[22] The administrators next referred to the withdrawal from the Company's CBA bank account of $39,500 on 23 July 2004, the cheque butt in respect of which indicated a distribution to the Tiwari Family Trust. On the other hand, the administrators noted that this appeared to coincide with the payment of the deposit on the Hoppers Crossing property and they said that the Company might be entitled to an equitable interest to that extent in the Hoppers Crossing property or to recover a loan in that amount from the proprietor of the property. The administrators next referred to a total amount of $56,278 being three withdrawals from the Company's CBA bank account. This total amount included a cash withdrawal on 21 February 2005 of $16,278.64 said to have been used for a credit card repayment, for a payment to David Mond & Associates and for a payment for petrol. The total amount also included a cash withdrawal on 22 February 2005 of $30,000 in respect of which Pradeep Tiwari advised the administrators that the funds were withdrawn in order to pay suppliers in cash. The administrators said there was no documentary evidence recording the use of the funds.[23] Finally, as part of this total amount, there was an amount of $10,000 withdrawn on 22 February 2005, the cheque butt in respect of which showed a payment to BTK and the administrators noted that the sum might be recoverable by the Company. The foregoing are a selection only of the transactions listed by the administrators.
115 The administrators' second report concluded on the above aspect:
"Clearly, the above transactions require further, more intensive investigation to obtain sufficient information in order to quantify potential claims and the prosecution of the ensuing claims by the company for the recovery of company property. It should be noted that the voluntary administration does not provide the forum for the requisite investigation and the potential prosecution of these claims."
116 The administrators' second report then turns to the alternative courses of action under s.439A of the Act. The administrators said that they had received a proposal for a DOCA from Sheela Tiwari but that the plaintiff had advised them that any proposal by him was subject to investigation into the conduct of the Tiwaris and certain transactions which might give rise to the possibility of recovery of further assets for the company. The administrators then analysed in detail a proposal received from David Mond on behalf of the Tiwari family and a group of investors and concluded that the proposal was not in the best interests of creditors. The administrators then expressed the opinion that the Company was insolvent and that there were matters requiring investigation, possible examination [ie public examination under the Act] and probably litigation. The administrators expressed the opinion that, in the absence of any acceptable proposal for a DOCA and having regard to the potential further recoveries available to the Company, it was in the best interests of the creditors that the Company be wound up. The report then set out a detailed analysis of the Company's financial position.
117 The administrators' second report concluded by noting that the creditors had approved their remuneration for the period from the commencement of the administration to 18 May 2005 in the sum of $56,257.60 and that at the reconvened meeting they would ask for the approval of their remuneration for the period from 18 May to the conclusion of the administration period. They set out further fees for the period 18 May to 7 June 2005 in the sum of $33,008.15.
118 By letter dated 9 June 2005 the plaintiff (who had not at that stage received the administrators' second report) again wrote to the administrators. The plaintiff said that he did not have the necessary financial information to make a decision concerning the precise terms of a DOCA, that the Company was solvent and that he had arranged for a third party to pay out the CBA and take a transfer of the mortgage and that he required all assets of the Company to be withdrawn from the market. He reiterated his request that the second creditors' meeting be adjourned pending the determination of the appeal. He said that unless he received an appropriate undertaking he would seek from the Court a termination of the administration or an adjournment of the creditors' meeting until after the determination of the appeal. He concluded by foreshadowing an undertaking should his "ultimate proposal" be accepted to pay all legitimate trade suppliers of the Company 100 cents in the dollar. The administrators replied by letter of the same date, enclosing a copy of an "Information Memorandum" in relation to the Company to assist the plaintiff in considering any proposal for a DOCA. The administrators asked the plaintiff to provide them with appropriate confirmation of the discharge of the CBA debt and the transfer of securities. The letter also drew his attention to the administrators' report wherein they recommended that the Company be wound up and said that they did not intend to seek an adjournment of the second creditors' meeting until after the determination of the appeal "without an indemnity for the costs of the Court application and the trading losses being incurred by the business".
119 By letter dated 10 June 2005 from BTK to the CBA, Sheela Tiwari's solicitors referred to her appeal in the first Supreme Court proceeding, and incorrectly informed the CBA that the Court of Appeal, mindful of the irretrievable breakdown of the relationship (ie between Sheela Tiwari and the plaintiff), had made an Order that joint administrators be appointed to take control of the affairs of the Company and that:
"We have just been notified by Mr Stirling Horne, one of the administrators ... that you have been approached by a relative / representative of the [plaintiff] with a view to settling of the debts owed to [the CBA] ... It is our client's instruction that the clear purpose of this arrangement is to usurp the position of the administrator by stepping into the shoes of the [CBA] and thereby to frustrate our client."
120 The letter from BTK to the CBA continued by making a number of inaccurate and irrelevant statements clearly designed to deter the CBA from dealing with the person seeking to pay out its debts and securities and threatening the bank with damages and other consequences.
121 By letter of the same date, BTK supplied a copy of their letter to the CBA to the administrators stating, inter alia:
"We refer to the writer's telephone conversation with Mr Horne on 10 June 2005 regarding the arrangement made by a "Mr Malhotra" settling the [CBA] debts and stepping into the shoes of the CBA ...
We confirm that such conduct, we are instructed, would prejudice our client's interests ..."
122 The letter from BTK to the CBA apparently had the consequence that the proposed payout by Naresh Malhotra of the CBA debt did not go ahead as had been arranged on 14 June 2005, but it went ahead and was finalised shortly thereafter.
123 By letter dated 10 June 2005 from David Mond & Associates to the administrators, the previous proposal by Mond for a DOCA was withdrawn. Instead Mond put forward an offer to purchase the Footscray property and the stock, plant and equipment located thereat for the sum of $525,000.
124 By summons dated 14 June 2005, in the first Supreme Court proceeding, the plaintiff sought injunctions, pending the appeal, against the defendants and also against the administrators. The plaintiff sought to restrain Sheela Tiwari from dealing with any of her property including her units in the Trust, her units in the Tiwari Family Trust and the Point Cook property. The plaintiff also sought to restrain Sheela Tiwari from interfering with his attempt to refinance the Company's facilities with the CBA. As against the administrators, the plaintiff sought, inter alia, the following:
(a) an injunction restraining them from disposing of the Hillside property, the Footscray property and the business;
(b) an injunction restraining them from convening a meeting of creditors on 16 June 2005 other than for the purpose of an adjournment of the meeting until after the hearing and determination of the defendant's appeal;
(c) an injunction restraining them from moving resolutions either for the execution of a DOCA or that the Company be wound up;
(d) an injunction restraining them from interfering with his "right as an equal Unit Holder of the [Trust] to the immediate possession and enjoyment of" the Footscray property.
125 By the summons dated 14 June 2005 the plaintiff also sought, pursuant to s.447A(2) of the Act that the administration of the Company should end because the Company was solvent, the conduct of the administration was uneconomical and prejudicial to the interests of creditors and each unit holder by reason of the "exorbitant costs and expenses of the process of administration", and because the provisions of Part 5.3A of the Act were being abused by Sheela Tiwari for the ulterior and improper purpose of attempting to deny him the fruits of his judgment.
126 The plaintiff's solicitors filed in support of his summons a 37 page affidavit dated 14 June 2005 outlining the history of the matter, much of which is reiterated in the plaintiff's first affidavit in this proceeding.
127 The administrators' solicitors filed an answering affidavit of Mr Vince sworn 15 June 2005. Mr Vince exhibited the administrators' second report. Mr Vince indicated that the administrators intended to auction the Hillside property on 25 June 2005 and the Footscray property shortly afterwards. Mr Vince deposed that the Company was trading at a loss of $2,325 per week and that this did not take into account the costs of the administration, the Company's liability to pay the entitlements of three employees, and accruing bank interest. Mr Vince further deposed that Mond had withdrawn his proposed DOCA and there was no existing proposal for a DOCA. He said that the administrators had sought expressions of interest for the purchase of the business. He concluded that "[b]ecause of costs thrown away and the additional costs which would be incurred by extending the administration" it was not in the interests of creditors that the relief sought by the plaintiff against the Company be granted.
128 On 15 June 2005 the plaintiff's application came before the Practice Court. The administrators were represented by Mr Randall of counsel (who also appeared on their behalf in the present proceeding). On that occasion Smith J ordered, upon the usual undertaking as to damages and upon a further undertaking by the plaintiff to pay $20,000 into the administrators' trust account, that, until further order:
(a) Sheela Tiwari be restrained from dealing with or charging any of her property including her units in the Trust, her units in the Tiwari Family Trust and the Point Cook property;
(b) Sheela Tiwari be restrained from interfering with the plaintiff's attempt to refinance the facilities maintained by the Company with the CBA;
(c) Pradeep Tiwari be restrained from dealing with or charging any of his property including the Hoppers Crossing property;
(d) The administrators (subject to payment of the said sum of $20,000) be restrained from disposing of the Hillside property, the Footscray property and the business and from holding a meeting of creditors on 16 June 2005.
129 Smith J ordered (subject to payment of the said sum of $20,000) that the time for holding a second meeting of creditors be extended to 29 June 2005 and further ordered, inter alia, that the summons be adjourned to 30 June 2005. The plaintiff paid the required sum to the administrators.
130 By letter dated 15 June 2005 from David Mond & Associates to the administrators, Mr Mond requested that a motion be placed on the agenda at the next creditors meeting to the effect that the creditors were in favour of accepting Mr Mond's offer to purchase the Footscray property and the plant, equipment and trading stock located thereat for $525,000.
131 In June 2005 the administrators requested[24] Mond to deliver up all Company books and records that were in his possession. The administrators conceded, and I agree, that this request should have been made earlier but there is no evidence that such delay made any difference.
132 On 17 June 2005 the plaintiff saw Mr Horne and asked him if he would consent to a transfer of the CBA mortgage to Naresh Malhotra and Mr Horne indicated that he could not so consent, saying that it would not be in the interests of the Tiwaris and that the whole dynamics of the situation would change. Instead Mr Horne asked the plaintiff to come and see him on 20 June 2005 so that the possibilities of an overall resolution could be explored. In any event the transaction went ahead, as it did not require the administrators' consent, and Naresh Malhotra replaced the CBA as a secured creditor.
133 On 20 June 2005 the plaintiff and Naresh Malhotra met with Mr Horne and Petersen and they discussed a possible DOCA and the matters which would need to be covered.
134 On or about 20 June 2005, Sheela Tiwari in substance abandoned the appeal in the first Supreme Court proceeding.
135 The administrators wrote to the creditors of the Company again by letter dated 21 June 2005, with reference to the meeting of creditors which had been adjourned by the Court to 29 June 2005. The letter informed creditors of the Court orders made on 15 June 2005 and went on to state:
"As a result of the earlier investigations the Joint Administrators concluded that the company was insolvent and in the absence of any alternative proposal to deal with the affairs of the company under a Deed of Company Arrangement the Joint Administrators recommended that the company be wound up. However, there have been a number of recent developments in the administration including:
a) The Commonwealth Bank of Australia ("CBA") had previously withdrawn its facility and formally required the company to extinguish the outstanding liability by 30th June 2005. As neither the company nor the Joint Administrators were in a position to comply with the requirements of the CBA in that time the company was clearly insolvent. The Joint Administrators have recently received confirmation that a Mr. N. Malhotra an associate of Dinesh Malhotra has settled the debt owed to the CBA and consequently has replaced the CBA as a secured creditor. In order to relieve the company from its immediate financial pressure, Mr. Malhotra has agreed to grant a moratorium on the payment of all amounts falling due and waive accumulation of penalty interest being charged under the former CBA facility.
b) Discussions are continuing with the litigants with a view to achieving a compromise.
In the circumstances it seems appropriate to further adjourn the decision meeting. It should be noted that the decision meeting may be adjourned for a period of up to 60 days from the day on which the meeting was first held. Accordingly, the decision meeting may be adjourned to no later than 25th July 2005. In the opinion of the Joint Administrators it is in the best interests of creditors at this juncture to adjourn the decision meeting to 25th July 2005."
136 By fax from the plaintiff to the administrators on 22 June 2005, the plaintiff set out the terms of an oral offer which he had put to Mr Horne on 20 June 2005. The offer included the following main elements: the CBA debt had been refinanced; the ANZ business loan of $186,000 to be paid out or taken over by "any new entity" subject to the administrators procuring a release of any collateral security held by the ANZ; all legitimate trade suppliers with unpaid accounts as at 29 April 2005 be paid in full within 60 days of "the entity" taking possession of the Footscray property; the administrators' fees to be paid; the plaintiff's proof of debt to be discharged in consideration of which the administrators should transfer the Footscray property and the Hillside property to the proposed new entity; all causes of action vesting in the Company against the directors and any third parties (excluding the administrators) be assigned to the plaintiff. There were various written and oral communications between the plaintiff and the administrators in the next few days but it is unnecessary to detail them save that, on 28 June 2005, Petersen informed the plaintiff that there was a problem with his offer or proposal because the ANZ, which held securities over the Company's properties, required to be paid in full.
137 On 25 June 2005 the plaintiff wrote a letter to various suppliers to the Company setting out the history of the dispute and litigation and indicating that the plaintiff's offer to the administrators would ensure a return of 100 cents in the dollar to all legitimate trade suppliers. The plaintiff sought their support, in person or by proxy, for his offer.
138 On 29 June 2005 the adjourned second creditors' meeting was held at the offices of the administrators. Mr Horne chaired the meeting. Mr Horne advised the meeting that he would make an assessment of the entitlements of creditors to vote at the meeting. He said that there appeared to be a divide between the creditors as there were factions appearing to support the plaintiff on the one hand and the Tiwaris on the other, most creditors having provided proxies to either the plaintiff or to Pradeep Tiwari.
139 Mr Horne outlined at the meeting the present financial position of the Company. He told the meeting that the CBA had been paid out by Naresh Malhotra, an associate of the plaintiff. He said that the Hillside property had been withdrawn from auction as a result of the Court orders. He mentioned that the Hillside property was encumbered by the mortgage to Naresh Malhotra (formerly the CBA), a caveat by the plaintiff and a caveat by Velos & Davis in relation to a debt of approximately $147,000. He added that the ANZ claimed to have an unregistered mortgage. He said that the Footscray property was encumbered by a mortgage to Naresh Malhotra (formerly the CBA), a caveat by a former spouse of the plaintiff, a caveat by the plaintiff and a caveat by Velos & Davis. He again added that there was an unregistered mortgage to the ANZ which also held a second-ranking registered fixed and floating debenture charge over the assets of the Company securing debts of the Company and debts of "related entities". Mr Horne said that the Velos & Davis claim could be challenged in liquidation and there was a good prospect of setting it aside. He said that the claim of the plaintiff arose by virtue of a judgment and there were no details of the claim by the plaintiff's ex-wife.
140 Mr Horne told the meeting that the ANZ Bank was represented at the meeting by Mr David Mond and that the Bank's claim of approximately $528,000 comprised a debt of around $191,000 owed by the Company as well as an amount of around $337,000 owed to the bank by Pradeep Tiwari in relation to the Hoppers Crossing property. He said that the ANZ were holding out to be paid the full amount and that if the Company paid out the ANZ it would be entitled to recover the amount of $337,000 from the Hoppers Crossing property. He referred to trade creditors' claims and to claims by other creditors.
141 Mr Horne told the meeting that the administrators had continued since their appointment to operate the business at a loss. He said that unless a resolution was achieved the administrators would have no alternative but to cease trading, but this was a last resort. He said that the plaintiff and the Tiwaris had views that were opposed to each other and there did not appear to be any opportunity for a compromise.
142 Mr Horne told the meeting that the administrators had proposed to adjourn the meeting for a period of four weeks, but their legal advice was that an adjournment of that period would be too long. He said that in the circumstances an adjournment of 10 to 14 days was more appropriate, pending the outcome of the Supreme Court hearing the next day (30 June 2005).
143 Mr Horne said that he would determine the entitlements of creditors to vote at the meeting. He explained that in the event of a poll a resolution was passed by a majority in number and in value in favour of the resolution proposed. He also said that the chairman might exercise a casting vote.[25]
144 Mr Horne testified that the meeting was adjourned for some time in order that he and his staff should investigate the entitlement of purported creditors to vote.
145 When the meeting resumed, Mr Horne advised that David Mond would be permitted to vote for a value of $1, BTK would be entitled to vote for a value of $1, the plaintiff would be entitled to vote for a value of $309,350[26] and that none of the Tiwaris would be entitled to vote in respect of "employee entitlements".
146 The meeting was then opened to questions from the floor. The plaintiff asked some questions about the claims of Velos & Davis, BTK and David Mond. An unsecured creditor asked whether the administrators could force the parties to resolve their issues so his debt could be paid. Mr Horne replied that they would need to remove caveator interests in relation to the Company's property and the only way to do this was in a liquidation scenario and to hold the proceeds in trust to adjudicate on all claims. There was further discussion on this topic and on offers received from the plaintiff and Mr Mond. After a deal of argument, Mr Horne said that there were many competing claims and whether they were valid was subject to investigation and legal advice and that the question of solvency was "arguable" based on all the claims - there were creditors due and payable and also overdue.
147 Mr Horne put to the meeting a resolution (proposed by the plaintiff and seconded by Naresh Malhotra) "that the meeting of creditors of the company be adjourned to Tuesday 12 July[27] 2005 in accordance with Section 439B(2) of the Corporations Act 2001". The resolution did not pass, the voting being 15 in favour (value $563,308) and 17 against ($581,601). A resolution was then passed that the offer of David Mond to acquire the Footscray property together with stock, plant and equipment "for a sum of $525,000 plus an additional sum of $75,000 to be made available for distribution to trade creditors" be accepted. It was common ground that this resolution had no force or effect and it is unnecessary to refer to it further.
148 The following resolution was then put, namely, "that the company be placed into liquidation either on the basis of insolvency or on just and equitable grounds[28] and that Stirling L Horne and Peter R Vince be appointed joint and several liquidators". This resolution was passed with 16 voting in favour (to a value of $581,600) and 14 voting against (to a value of $561,822). There were two abstentions (to a value of $1,487) being BTK ($1) and State Revenue Office ($1,486). Mr Horne declared the winding up resolution carried and closed the meeting.
149 The votes against the adjournment were constituted by the ANZ ($528,800) and 16 other creditors. Included in the votes against the adjournment resolution were creditors whose status has been challenged in this proceeding by the plaintiff, namely, BTK ($1), David Mond & Associates ($1), V2 Entertainment ($15,050.75), Colossus Food ($3,112.80), Shahzad Muhammad ($2,355.15) and Lucky Asian Pty Ltd ($2,370). The votes in favour of the adjournment were constituted by the plaintiff ($309,350), Naresh Malhotra ($217,000) and 13 other creditors.
150 The votes in favour of the liquidation resolution were constituted by the ANZ ($528,800) and 15 other creditors. Included in the votes for liquidation were creditors whose status has been challenged in this proceeding by the plaintiff, namely, David Mond & Associates ($1), V2 Entertainment ($15,050.75), Colossus Food ($3,112.80), Shahzad Muhammad ($2,355.35) and Lucky Asian Pty Ltd ($2,370). The votes against the liquidation were constituted by the plaintiff ($309,350), Naresh Malhotra ($217,000) and 12 other creditors.
151 On 30 June 2005 the adjourned summons (dated 14 June 2005) came before the Practice Court. The liquidators were represented by Mr Randall of counsel. Upon the usual undertaking as to damages and upon a further undertaking by the plaintiff to file a proceeding in the Corporations List seeking a declaration that the creditors' resolution for winding up be declared void and/or that the winding up of the Company be terminated, Cummins J continued until further order the injunctions granted by Smith J in sub-paragraphs (a), (c) and (d) thereof[29] but the injunction restraining the liquidators from selling the business was not continued. Cummins J further ordered that the plaintiff's summons be adjourned for hearing by the Judge in the Corporations List as soon as was reasonably practicable. The plaintiff's summons is thus before the Court when hearing the present proceeding, although it is necessarily ancillary only to the issues now raised in the present proceeding.
152 By letter dated 1 July 2005 from the plaintiff to the liquidators, the plaintiff said that the mere fact that the Court had not enjoined the disposal of the business afforded no basis for assuming that the sale of the business would be proper in circumstances where he had foreshadowed that he intended to file a proceeding seeking a declaration that the purported liquidation of the Company be declared null and void. The plaintiff further referred to his "direct half joint beneficial interest in the business" pursuant to the judgment of Balmford J and said that the liquidators had "no authority whatsoever to dispose of the business or any part thereof without my express written consent." He said that he also proposed to seek that the administration of the Company be terminated on the basis that the Company and the Trust were solvent. The letter continued in strong terms to criticise the administrators' and liquidators' conduct. By way of example only, the plaintiff said that he was "disgusted" by the administrators' "gross negligence in the management of the company's affairs" and that he proposed to seek "substantial exemplary damages against each of you for your gross dereliction of duty in allowing the 'destroyers' of the business to 'rule the roost' even in the face of the mountain of evidence which I have presented of their breach of directors' duties".
153 The plaintiff wrote a further letter to the liquidators dated 1 July 2005 in which he asked them to remove the Tiwaris and offered to run and manage the business for $1,500 per week.
154 By letter dated 6 July 2005 to interested parties (including the plaintiff, Pradeep Tiwari and Mond), the liquidators sought tenders for the purchase of the business and its stock, plant and equipment and for the use of the premises at the Footscray property to conduct the business. The proposed contract provided not only for the sale of the business but an option to purchase the Footscray property and a license for use of the business premises thereat. The tender documents noted that the liquidators were restrained by Court order from selling the Footscray property but that, in substance, if the property became available for sale it would be sold by public auction but only if the purchaser of the business did not exercise the option granted by the contract to purchase it. Annexed to the tender documents was a table summarising daily and weekly sales of the business for the period from 1 January 2005 until 27 June 2005. The table showed a continuing overall decline in total weekly sales as follows[30]: in January 2005 between $22,000 and $26,000; in February and March 2005, after the judgment in the first Supreme Court proceeding, between $18,000 and $22,000[31]; in April 2005, between $14,500 and $18,700; in May and June 2005, between $13,000 and $15,000.
155 By letter dated 7 July 2005, the liquidators' solicitors responded to the plaintiff's letter of 1 July 2005, first mentioned above. Among other things, they said that their duty as liquidators was to act in the best interests of the creditors and that they were not required to seek authorisation from the plaintiff or from Sheela Tiwari in respect of any sale of the business and assets of the Company. They acknowledged the plaintiff's allegations against the members of the Tiwari family and said that they would continue to progress the assessment of proofs of debt and investigation of claims.
156 By letter dated 8 July 2005 from the plaintiff's solicitors to the liquidators' solicitors, it was contended that the liquidators had breached the spirit and terms of the injunctions granted by Cummins J by improperly offering for sale the Footscray property and requiring them to retract the invitation to tender in respect of the acquisition of the Footscray property.
157 By letter also dated 8 July 2005 from David Mond & Associates to the liquidators, a whole series of factual and legal contentions were put to the liquidators including allegations of bias and conflict of interest. It is unnecessary for the purposes of this proceeding to refer further to the contents of the letter.
158 As I have said, the present proceeding was commenced by the plaintiff on 12 July 2005.
159 On 13 July 2005 Naresh Malhotra took steps to physically enter the Footscray property and gave notice in writing to the Company and to the liquidators that he had entered into possession of certain property of the Company pursuant to a registered mortgage debenture. The liquidators and their solicitors challenged Naresh Malhotra's right to take these steps but it was not suggested, in the present proceeding, that there was any valid basis for that challenge.
160 Sheela, Pradeep and Markandey Tiwari instituted a proceeding in the Supreme Court against Naresh Malhotra (number 7248 of 2005) and by a summons dated 18 July 2005 sought to restrain Naresh Malhotra from entering the Footscray property or interfering with the business. On 22 July 2005 in that proceeding, Naresh Malhotra undertook not to enforce his right to possession, as mortgagee of the Footscray property, before 4pm on 28 July 2005 and the plaintiffs were restrained from preventing Naresh Malhotra from taking possession of the Footscray property and from interfering with his operation of the business. However in the events which happened, Naresh Malhotra, prior to the expiry of his undertaking, was paid out by MIG Property Services Pty Ltd a company associated with David Mond, and that company apparently became entitled (by way of subrogation to the rights of the CBA) to the first mortgages over the Footscray and Hillside properties and the registered charge over the assets of the Company. MIG Property Services Pty Ltd undertook to the liquidators not to take any enforcement action in respect of the mortgages and the charge before 1 December 2005.
161 By originating process filed 19 July 2005, the liquidators instituted a proceeding (no. 7263 of 2005) seeking directions as to whether they were entitled to dispose of the business and assets of the Company in the manner contemplated by the tender documents, and as to related matters.
162 On 21 July 2005 the liquidators received a letter of that date from the ANZ stating that the Company was currently indebted to the ANZ in the sum of $189,947.75, secured by a second-ranking charge over all of the assets and undertaking of the Company, that the Company was in default of its obligations to the ANZ and that there had not been any reduction in the debt since the Company was placed into external administration. The letter said that the ANZ required clearance of the debt but noted that they had been advised by the liquidators that they were currently restrained by relevant court orders from selling the freehold property of the Company and related assets. The letter concluded that "the ANZ would support an application by the Liquidators to the Court seeking orders authorising the Liquidators to sell the Company's assets, including the freehold property and the business." The letter was signed by Glynn Sadler, Manager (Business Banking Melbourne). The evidence shows that the sending of this letter was prompted by Petersen, on behalf of the liquidators, in order to obtain supporting evidence for the liquidators' application to the Court. Apparently the ANZ letter was seen by one Mr Neil Hampton, the ANZ's Relationship Manager at its Elsternwick Branch. Mr Hampton telephoned Petersen and said that the amount in the letter was incorrect and that the ANZ was owed $528,000. A second letter of the same date, signed by Mr Sadler, was sent to the liquidators. The letter was in similar terms to the first letter, but added inter alia that "[t]he Company also has contingent liabilities to the ANZ in the sum of $339,320.26" which liabilities were also secured by the second-ranking charge. The second letter indicated that the ANZ might choose to crystallise the contingent liabilities.
163 On 29 July 2005, the liquidators' application for directions was adjourned to 19 August 2005 but on 5 August 2005, in response to a further application by the liquidators, the application for directions was fixed for trial on 10 August 2005. In support of the liquidators' contention that the directions application should be heard on an urgent basis, an affidavit of Mr Horne sworn 4 August 2005 was filed. In that affidavit Mr Horne referred to the significant losses being made by the business and the receipt of 3 offers to purchase the business which could not be dealt with, one of which offers the liquidators were anxious to accept. An estimated trading statement was exhibited to Mr Horne's affidavit which showed an operating loss of over $24,000 but an overall loss of $312,614 as a result of non-trading expenses incurred. These non-trading expenses included the administrators' legal costs of $59,307 and the administrators' remuneration of $208,234. A further exhibit showed that the estimated financial position of the Company had substantially deteriorated from 29 April 2005, that deterioration being primarily caused by the said trading losses and the said non-trading expenses.
164 On 10 August 2005 the Court ordered that the liquidators be restrained from selling the business pending the trial and determination of the present proceeding.
165 By letter dated 12 August 2005 the liquidators' solicitors informed the solicitors for the plaintiff and the solicitors for Sheela Tiwari that, as they were now restrained from selling the business, they had decided to close it forthwith (but in fact they have not done so). On the same date the plaintiff wrote a 23 page letter seeking to persuade the liquidators to give him a license to run the business pending the determination of the present proceeding and setting out in detail numerous complaints and contentions. Again on the same date the plaintiff's solicitors responded in detail to the letter from the liquidators' solicitors of that date, and they wrote again on 16 August 2005.
166 By letter dated 15 August 2005, the solicitors for the ANZ wrote to the liquidators, enclosing a demand dated 12 August 2005 for payment addressed to the Company (in its own capacity and in its capacity as trustee of the Trust) in the sum of $191,145.21 plus interests from the date thereof.
167 By letter dated 17 August 2005, the liquidators wrote to the plaintiff and to Sheela Tiwari calling for a proposal from each of them in relation to an agreement for a license to conduct the business pending the determination of the present proceeding.
168 The liquidators' license proposal led to further offers and disputation and resulted in an additional interlocutory application in proceeding no. 7263 of 2005, but it is unnecessary to refer to the details because an early trial date for the present proceeding was fixed shortly thereafter. What remained of proceeding no. 7263 of 2005 was then adjourned to the trial of the present proceeding, which was fixed for hearing on 26 September 2005.
169 By letter dated 12 September 2005 from the ANZ to the Company the ANZ demanded payment of the sum of $340,156.48 being the sum owing under a guarantee and indemnity dated 18 September 2004 given by the Company to the ANZ in respect of the indebtedness of Pradeep Tiwari, in his own capacity and as trustee for the Tiwari Property Trust, and secured by mortgage debenture and also real property mortgages over the Footscray and Hillside properties[32].
170 On or about 18 September 2005 or possibly earlier, a new business apparently commenced operation in a shop at 565 Barkly Street Footscray, across the road from the Footscray property. In the evening of 28 September 2005 the shop was closed but the plaintiff saw Markandey Tiwari together with Sheela Tiwari's father in the shop.
171 Investigations by or on behalf of the plaintiff during the trial revealed that this business is operated by Mumbai Traders Pty Ltd, that the sole director and the holder of the only issued share in Mumbai Traders Pty Ltd is Merwyn Oshry, who holds it on trust for an undisclosed party[33], and that Oshry is the office manager of David Mond & Associates. Pradeep Tiwari denied any knowledge of Mumbai Traders Pty Ltd and denied any connection of his family with that company. These circumstances became part of the evidence apparently because, in response to evidence from Pradeep Tiwari about increased competition in the area, the plaintiff was "checking out" the shop in question. The said circumstances may or may not require investigation by the liquidators but have no immediate bearing upon the issues in this proceeding.
The witnesses
172 I now refer generally to my assessment of the principal witnesses and to some additional aspects of their evidence.
173 I found the plaintiff to be an honest witness although in the present proceeding his credibility is not of crucial significance. The plaintiff was obviously heavily and emotionally involved in the relevant events, in his wider dispute with Sheela Tiwari and also in the actual conduct of the litigation. It was apparent to those in Court that he was constantly working on the case and assisting his counsel who in general did not have the luxury of the regular attendance of his instructing solicitors. The only caveat I would sound about the plaintiff's evidence was that his account of conversations with Messrs Vince and Horne appeared to me to be affected by his emotional approach to the whole dispute and consequently I am of the view that he sometimes heard what he wanted to hear and did not hear what he did not want to hear. I consider that where contemporaneous notes of meetings or conversations were available these provided a more reliable record.
174 I found Pradeep Tiwari to be an intelligent and careful witness who tried to give an accurate account where he was able to do so and where he thought that it did not prejudice the interests of his mother, himself and the Tiwari family. On some sensitive matters where he was under attack, I thought that he was wholly evasive or that he provided part of the truth only. For example, I found that he was reluctant to give a clear or comprehensive account of the nature and size of the business conducted by Tiwari & Co and Tiwari & Co Pty Ltd. This gives rise to considerable suspicion and the liquidators are justified in their view that further investigation is required. On the other hand, his defensive attitude under sustained attack was understandable and does not lead to a firm conclusion that breaches of directors' duties are necessarily involved. The precise nature and extent of any claim by the Company against its directors and against Tiwari & Co and Tiwari & Co Pty Ltd is difficult to assess on the evidence before the Court. Another example was Pradeep Tiwari's explanation of the source of the sum of $40,000 of the Company's funds applied towards the completion of the purchase of the Hoppers Crossing property. The circumstances are suspicious but it is difficult, on the evidence available in this proceeding, to determine whether Pradeep Tiwari's conduct was innocent or, if it was, whether other members of the family acted honestly or were involved in a device to utilise Company funds. When it came to Pradeep Tiwari's account of the application of the cash withdrawals from the Company's bank accounts, I found his account reasonably credible. There was good reason to be concerned that the plaintiff might succeed in freezing the Company's bank accounts and I found the stated anxiety about paying suppliers to be credible and it appeared to be genuine. That is not to say that a careful examination and reconciliation of the amounts involved should not be conducted or that payments to persons other than suppliers might not be challengeable. No doubt the most serious allegation, denied by Pradeep Tiwari, relates to the misappropriation of cash from the business both before and after the appointment of administrators. Proof of this allegation is of its nature difficult for the plaintiff although the significant drop in the cash takings of the business raises reasonable suspicions. Pradeep Tiwari offered explanations, albeit belated, for the decline in the cash takings of the business. The principal explanation in substance was that there was increased competition from numerous Indian grocery shops which had opened in the neighbourhood and in the region and that there was also a decline in profit margins. I found his evidence on this to be credible but it may well be only part of the story. Other factors have probably affected the takings of the business since the commencement of the administration, namely, the cessation of importing activities leading to a reduction in the variety of stock and the reduction in staff numbers (coupled quite possibly with reduced enthusiasm in the circumstances). It may be (as was hinted by Mr Selimi) that deposits into the bank accounts of Sheela Tiwari and Pradeep Tiwari (and perhaps others) might require explanation and I am sure that an investigation is warranted.
175 Messrs Vince and Horne were cross-examined on their affidavits. In assessing their evidence I have taken into account their vested interest in defeating the plaintiff's application for a termination of the liquidation given that it attacks their right to substantial remuneration not to mention their professional reputation. I found the evidence of each of them to be generally honest and credible and I in particular I accept their account of their reasons for the various decisions made by them that were under attack by the plaintiff. Their command of the detail of relevant matters was sometimes less than perfect and this was, it seemed to me, to be explained by reference to their dependence on their staff (in the main Petersen and Chivers) for the day to day conduct of the administration.
The plaintiff's primary application and its relationship to the alleged misconduct of Messrs Vince and Horne
176 The primary application by the plaintiff is for the termination of the winding up of the Company pursuant to s.482 of the Act which, so far as material, provides:
"(1) At any time during the winding up of the company, the Court may, on application, make an order ... terminating the winding up on a day specified in the order.
(1A) An application may be made by:
(a) in any case - ... a creditor ... of the company;
...
(2) On such an application, the Court may, before making an order, direct the liquidator to give a report with respect to a relevant fact or matter.
(3) Where the Court has made an order terminating the winding up, the Court may give such directions as it thinks fit for the resumption of the management and control of the company by its officers ..."
177 Mr Selimi in substance acknowledged that the solvency of the Company was a prime consideration for the Court in deciding whether the winding up should be terminated because if a company was hopelessly insolvent it would not be appropriate, or realistic, to terminate a winding up and return such a company to the control of its directors. For this reason it was common ground that the present financial position of the Company was of great importance in the determination of the case. The present financial position of the Company is, in turn, affected by its liability (if any) for the fees and expenses of Messrs Vince and Horne in their capacity both as administrators and as liquidators. Indeed, the financial viability of the Company is to a great extent in question because of the very substantial claim for fees and expenses by them. This fact explains the emphasis placed by the plaintiff upon the alleged misconduct of Messrs Vince and Horne. Their fees and expenses were not challenged as unreasonable, nor was there any attempt to analyse how they were made up and calculated. Rather, the contention was that they were wholly disentitled to the fees and expenses claimed by them by reason of their alleged misconduct. Mr Selimi conceded that, if he failed to satisfy the Court that the conduct of Messrs Vince and Horne was such that they were not entitled to claim their fees and expenses, the plaintiff would face a substantial and significant difficulty in proving the solvency of the Company and, as a result, in justifying an order for the termination of the winding up. The alleged misconduct of Messrs Vince and Horne in their capacity as administrators and liquidators is in this way central to the primary application for the termination of the winding up and it will therefore be appropriate to deal with that question before dealing with the question of solvency generally and with other matters relevant to the application for termination of the winding up.
The appeals under s.1321 of the Act
178 Another aspect of the plaintiff's case should be mentioned at this stage. The plaintiff sought to appeal pursuant to s.1321 of the Act against certain decisions of the administrators. Section 1321 of the Act provides, so far as material, that a person aggrieved by any act, omission or decision of an administrator of a company may appeal to the Court in respect of the act, omission or decision and the Court may confirm, reverse or modify the act or decision, or remedy the omission, and make such orders and give such directions as it thinks fit. In the originating process there are six references to s.1321 of the Act. These are to be found in paragraph C(i) and (ii) on page 4 of the originating process, in paragraphs E and F on page 9 of the originating process, paragraph G on page 10 of the originating process and paragraph P on pages 11 and 12 of the originating process.
179 Paragraph C of the originating process seeks a declaration that the resolution to wind up the Company purportedly passed at a meeting of creditors on 29 June 2005 is null, void and of no effect and should be set aside by reason of:
"(i) the [administrators'] unreasonable decision to accept and act upon the resolution moved by David Mond on behalf of undisclosed persons which should be reversed pursuant to section 1321 of the Act;
(ii) the [administrators'] unreasonable decisions to accept the invalid proofs of debt, votes and/or proxies of David Mond, the ANZ Bank, Shezz. S and the Colossus Food Company which should be reversed pursuant to section 1321 of the Act;"
"Whether the Chairman erred in accepting the Proofs of Debt of Vijay Kooblal ( Exhibit A: Account from Messrs Kooblal addressed to "Mrs. Sheela Tiwari" dated 22nd April, 2005**; Contra Exhibit CG: Letter from Kooblal to the administrators dated 9th May, 2005 together with attachment being an Account dated 9th May, 2005 (** i.e post- administration) purportedly addressed to "S & D International Pty. Ltd ( but containing a description of services Re: Supreme Court Matter being identical to the account marked Exhibit A and claiming an identical sum ); David Mond (Exhibit B); Colossus Foods Company (Exhibit Note DM 50); V2 Entertainment; Lucky Asian ( Exhibit V); Sheez M? The critical question is whether, as a matter of contractual liability, the Chairman erred in accepting such impugned Proofs of Debts for voting purposes based upon the material presently before the Court. The statutory appeal is an appeal 'de novo' and the Court must decide for itself whether the alleged creditors are creditors "of the company", as distinct from creditors of the Tiwari family. Are the alleged debts "legally enforceable" against the company? Further, are the particulars proffered to the Court sufficient to enable the Court to conclude that the company is indebted to the named persons?"
181 The above submission refers to V2 Entertainment and Lucky Asian in addition to the creditors identified in the originating process but no objection was raised to this.
182 The way in which the plaintiff was relying upon the above quoted submission was clarified by Mr Selimi in oral argument when he said;
"Your Honour, we are talking about the first resolution, the resolution being to adjourn the meeting of the creditors until 12 July. That was only rejected with the support of votes from Mr Kooblal and Mr Mond. So the position is that if both of those votes are knocked out then the chairman, as Mr Horne conceded, would exercise his casting vote under the regulations, and as I put to Mr Horne, he conceded after some cross-examination that it would be unlikely that he would not exercise his casting vote in favour of an adjournment in circumstances where he was the person who was proposing the adjournment in the first place."
183 I then asked Mr Selimi, in effect, whether it served any useful purpose to come to a conclusion on an appeal from the administrators' decision about votes for an adjournment when there had been a subsequent resolution to wind up the Company and the Company was in liquidation. Mr Selimi responded by submitting that the Court could under s.1321 make any order "it thinks fit" and that could extend to terminating the winding up, but Mr Selimi conceded that he "would be hard pressed to suggest in the circumstances that in view of all the water under the bridge that the liquidation for those reasons alone ought to be terminated."
184 It seems to me that it is pointless to investigate the voting on the adjournment resolution and then to hypothesise as to what other result might have ensued in given circumstances. The real questions (if any) relate to the voting on the winding up resolution.
185 Mr Selimi made oral submissions in relation to the entitlement to vote of BTK, Mond, Colossus Foods, V2 Entertainment, Lucky Asian and Shezz M. I will deal with each of these in turn.
186 In relation to BTK, Mr Selimi submitted that their accounts related to services rendered for the benefit of Sheela Tiwari and were addressed to Sheela Tiwari, although there was an account post-dating the administration, dated 9 May 2005, which was addressed to the Company. I agree that there is evidence pointing to a conclusion that the relevant liability to BTK is that of Sheela Tiwari and not that of the Company.[34] The ultimate question of liability cannot be determined in this proceeding. All that can be determined in this proceeding, at best, is what was the appropriate decision to be made by the administrators at the meeting on 29 June 2005 in relation to voting rights of creditors, in this instance of BTK. In any event, BTK did not vote on the resolution for the winding up of the Company and I am therefore of the view, for reasons already stated, that a conclusion in relation to BTK is irrelevant for present purposes.
187 In relation to Mond, Mr Selimi submitted that the Mond account was addressed to Sheela Tiwari, albeit there was a reference to S & D International. Mr Selimi said that looking at the particulars of the services rendered, they all related to services rendered for the benefit of Sheela Tiwari in relation to the judgment of Balmford J and did not relate to services rendered for the benefit of the Company.
188 An invoice of David Mond & Associates dated 28 February 2005 for the sum of $18,449.75 was addressed to:
189 The said invoice set out professional services rendered in the period 16 February 2005 to 28 February 2005. The services rendered on 16 February 2005 are described as "Litigation - attendance at Supreme Court for decision; review of written decision ...; follow up urgent call from Sheela." The services rendered on 18 February 2005 are described as "Litigation - attendance at lengthy conference with new solicitor ... with Sheela and Mark ... attention to ANZ Bank matters ... review for Full Court Appeal." In the following days further attendances are referred to with Sheela Tiwari's solicitor and barrister. The services rendered on 23 February 2005 are described as "Litigation - Attendance at court 14, Supreme Court re: orders and costs to advise and assist Counsel; meeting of legal team and clients there after, return to office to arrange ... to provide remuneration and job description information for court and calculations Net Income, meeting of financial team review Orders sought and prepare appropriate financial response including assets and liabilities ...". Further services rendered on 23 February 2005 are described as "Preparation of documents regarding Supreme Court Plan of Action for David Mond." The invoice continues on in similar vein. The overall impression is that the invoice appears to be addressed to Sheela Tiwari in respect of services rendered to her and relating to her interests. Despite the reference to the Company in the address of the invoice, it does not readily appear that the services were rendered to the Company. There are further invoices from David Mond & Associates to Sheela Tiwari dated 21 March 2005 and 29 April 2005 which may be characterised in the same way. It would seem to be at least strongly arguable that any payments by the Company to David Mond & Associates in respect of those invoices were improperly made and the Company may well have an entitlement to recover the same from any director involved in making the payment. It may also be arguable that the payments are recoverable by the Company from David Mond & Associates. These questions cannot be decided in this proceeding. Further, it should be noted that David Mond & Associates were the accountants for the Company and insofar as the Company made payments to its accountants for services properly rendered in that capacity, no challenge could be made to such payments. In that regard, Mond claimed in an email to the administrators dated 4 May 2005 that his firm was a major creditor of the Company.
190 The administrators permitted Mond to vote as a creditor, but only to a value of $1. I am not satisfied, having regard to the foregoing, that the plaintiff has made out a case and the appeal against this decision fails.
191 In relation to V2 Entertainment, it was agreed between counsel that V2 Entertainment was a creditor in the sum of $8,464.75. It follows that V2 Entertainment was entitled to vote but that the value of its vote was $8,464.75 rather than $15,050.75 (the amount recognised by the administrators at the meeting).
192 In relation to Lucky Asian, there is an invoice dated 26 February 2005 from Lucky Asian Pty Ltd to the business for $2,370 and which appears to bear a note of payment of that amount. There is also a cheque butt relating to that invoice dated 21 March 2005 for the sum of $2,370. However, there is credible evidence from Pradeep Tiwari that the cheque was dishonoured and that the amount remains unpaid. Mr Selimi submitted that there was evidence that Lucky Asian had received some $22,000 in cash payments after the administration had commenced, and therefore it was unlikely that it would not have received the amount of the pre-administration debt of $2,370. I am not satisfied on the evidence that that is so. The appeal in relation to the decision concerning Lucky Asian fails.
193 In relation to Shezz M (or Shezz S, or Shahzad),[35] Mr Selimi relied upon the fact that the invoice had no address on it. However, a series of invoices to Bharat Traders dated from 9 March 2005 to 6 April 2005 indicate a total of $2,797.35 payable to Shezz or Shahzad. I am satisfied on the evidence that the creditor existed and the appeal in relation to the decision concerning this creditor fails.
194 In relation to Colossus Foods, Mr Selimi submitted that the date of the relevant invoice was 2 May 2005 and the amount was payable on delivery and that according to the face of the document the delivery being after the administration had commenced, Colossus Foods was not a pre-administration creditor entitled to vote. Mr Selimi submitted that evidence to the contrary from Mr Horne was purely hearsay. It is unnecessary to determine this question because if Colossus Foods was not entitled to vote it would make no difference to the result of the vote on the winding up resolution, either on number or value, given my conclusions on the other challenged votes.
195 For the foregoing reasons the plaintiff's appeals under s.1321 of the Act are dismissed.
Alleged misconduct of Messrs Vince and Horne
196 In relation to the duty of a liquidator (and by analogy an administrator) Mr Selimi relied upon the case of Sydlow Pty Ltd (in liq) v TG Kotselas Pty Ltd[36]. One aspect of the proceeding in that case involved a claim against a liquidator as a tortfeasor. Mr Selimi referred to the following passage in the judgment:[37]
"The office of a person appointed liquidator to a corporation, does not fit any precise legal category or classification, which defines the rights and liabilities, attaching to that office. It is a hybrid composite with elements of fiduciary, trustee, agent, officer of the corporation and (in some instances) "officer" of the court. Attached to those elements are the obligations along with the powers and discretions which apply to those roles. The liquidator's office is described in Loose on Liquidators, 3rd ed, 1989, at p 13 as:
... a cross between a trustee and an agent or, alternatively, like the directors, whose powers terminate upon the commencement of a winding up, as a fiduciary agent of the company. Thus a liquidator must not only act bona fide and reasonably and exercise his powers for their proper purposes only but must also exercise reasonable care and skill in the performance of his duties. Failure to exercise the necessary degree of skill and care may inter alia deprive him of his costs. A liquidator is also under a fiduciary duty in respect of the assets of the company of which he is appointed. As such he should not purchase assets of the company. Similarly, a liquidator may be required to disgorge any secret profit made ... in consequence of ... his office as liquidator and transaction with an associate may be set aside ...The liquidator differs from the normal agent, however, in that he himself controls the actions of his principal, ie. the company. Furthermore his duties as agent of the company are subject to his overriding statutory duties to apply the company's assets in paying creditors and to distribute any surplus amongst the members.
A similar description is contained in Palmer's Company Law Service (published by Sweet and Maxwell) at 15,128-15,132."
197 I asked Mr Selimi, in effect, in the light of the above quotation, whether he could cite any authority as to when a "failure to exercise the necessary degree of skill and care" would (as opposed to might) "deprive" a liquidator (or an administrator) of his costs. Mr Selimi submitted that "[i]t clearly must depend upon the level of the degree of departure". Mr Selimi also referred to another passage in the same case:[38]
"The liquidator is an officer of the court and therefore subject to the control of the court. If any wrong has been done by such officer, that court will see that justice is done."
198 Mr Selimi also referred to a statement by Austin J in Bovis Lend Lease v Wily:[39]
"It is now well established that a liquidator must be, and be perceived to be, independent of the company, its directors and shareholders, and individual creditors. The liquidator must act, and be perceived to act, impartially in the discharge of the duties and responsibilities of his or her office. Although the distinction is not always observed, there are in fact separate duties relating to independence and impartiality (absence of bias)."
199 I note that in Bovis Lend Lease v Wily Austin J applied the same principles to voluntary administrators when he said:[40]
"Part 5.3A does not expressly state that the administrator is required to be independent of the directors and any creditors during the administration, or that he or she must act impartially in the discharge of the statutory responsibilities. However, even a cursory review of the scope and objects of Pt 5.3A would establish that voluntary administrators have implied duties of independence and impartiality, which are part of the very marrow of voluntary administration system. It has therefore been held that the principles of independence and impartiality developed and applied to liquidators are equally applicable to voluntary administrators ... -- although differences in the circumstances in which they are required to work (especially the speed at which the administrator must work) may affect the standard required to be observed in particular circumstances."
200 Mr Selimi submitted that the relevant misconduct was serious and not a matter of mere negligence. Mr Selimi said:
"In my submission, the principal basis upon which the court ought make a finding of misconduct against the current liquidators is that they have manifestly failed, and perceptibly so, to impartially discharge their duties as between the unitholders by giving clear preferential treatment to the Tiwari family in circumstances which could only be described as uncalled for and a draconian exercise of discretion, having regard to the matters of probity that are adverted to in the submission.
...
The submission is a reasonable bystander, looking at all the matters of which the court is apprised must bear a reasonable apprehension that the administrators/liquidators have not impartially and fairly discharged their duties as between the unitholders and that is manifest from every step of the decision-making process that the administrators have indulged in and particularly manifest in certain respects."
201 Mr Selimi continued, in his oral submissions, by saying that the following conduct of the administrators showed their lack of impartiality:
• the selection of the Tiwaris to run the business;
• the abuse of their duties in June 2005 in relation to the CBA debt, including the facts that Mr Horne telephoned Mr Kooblal and informed him that Naresh Malhotra was going to pay out the CBA and that they opposed an adjournment of the creditors' meeting scheduled for 16 June 2005, the various matters indicating a preference for liquidation, an intent to prevent the discharge of the CBA debt and the saving of the Company from insolvency, and an intent to impede Naresh Malhotra from having a vote at the forthcoming meeting;
• the conduct of Petersen in July 2005 in attending 580 Barkly Street and preventing Naresh Malhotra as secured creditor from taking possession of the premises (and related conduct) and Petersen's conduct in "procuring a demand" from the ANZ Bank.
202 Mr Selimi concluded his oral submissions on this topic by saying that Messrs Vince and Horne were to blame if the Company was "dead" - they had the power to "insulate it from all of the damage being caused by these directors" and what was done by them was "a total annihilation of the statutory objects of Part 5.3A".
203 I should also note that, in his written submissions, Mr Selimi raised the following principal points in relation to the conduct of the administrators and liquidators:[41]
• the liquidators harbour a grudge against the plaintiff for daring to question their professional integrity as insolvency practitioners - this is reflected in the "back tracking" evident in the section 482 report tendered to the Court to which no weight ought to be accorded as it is "infected by bias and anger";
• Mr Horne permitted the Tiwaris "to run riot with the business for the last six months ... with little if any supervision or control";
• the reasons proferred by the administrators in support of their decision to allow the Tiwaris to run the business do not withstand careful scrutiny in that one of the greatest threats posed to the business was the honesty and probity of the Tiwari family;
• the liquidators had a real financial interest in the outcome of the application having regard to their claim ... as "priority creditors" - "[i]ndeed, as a matter of commercial reality, it may fairly be said that the solvency of the Trust may substantially depend upon a disallowance of their remuneration and costs";
• the administrators and liquidators have permitted the Tiwaris to pull the wool over their eyes while the Company and the Trust have been left haemorrhaging;
• "the administrators and liquidators have perpetuated the oppressive, discriminatory and unfair conduct of the Tiwaris by granting the Tiwaris exclusive use and possession of the residential and business premises whilst adding salt to the wounds by paying the Tiwaris $3,600 per week since 29 April 2005 whilst [the plaintiff] has been left to fend for himself and his own family without any assistance whatsoever";
• "Axiomatically, the conduct of the administrators in unfairly discriminating against the unit holders deserves close scrutiny particularly in light of the continuing statutory and fiduciary duties owed by the administrators as agents of the company and effective trustees of the Trust. Manifestly, the administrators have failed to treat the unit holders impartially, fairly and have, moreover, prejudiced the interests of the Trust by failing to take preventative and remedial measures in order to preserve and protect the assets of the Trust upon their appointment on 29th April,2005. In essence, they have slept at the wheel and allowed the Tiwari's to continue their rampage against the company and the Trust thereby prejudicing the interests of [the plaintiff]";
• the administrators' appointment of the Tiwaris as effective managers and controllers of the business was irrational and unreasonable in the light of the matters known by them or which ought to have been known by them;
• "It is submitted that the liquidators have engaged in a serious mismanagement of the affairs of the Trust from the commencement of their administration. If the Trust is now insolvent (which is denied) , it is only because of their gross negligence and serious misconduct in failing to discharge their duties as administrators /liquidators of the Trust. In this regard, the Plaintiff respectfully submits that the conduct ( actions or inactions) of the liquidators must be assessed in the light of the objects underlying Part 5.3A as prescribed by section 435A of the Act having regard to the powers conferred upon them by the Act.";
• "The liquidators know full well that the Trust was solvent as at 29th June, 2005. This explains why the liquidators have not sought to contend otherwise during this trial. Hence, if it has become insolvent after 29th June, 2005, it could only be due to the incompetence of the liquidators in failing to properly discharge their statutory and fiduciary duties towards the company, the creditors, and the beneficiaries of the Trust. Indeed, the liquidators are inevitably faced with an inherent conflict of interest in this litigation, as has become apparent during the course of trial.";
• "Counsel for the liquidators commenced his opening address by suggesting that the liquidators would not be adopting a particular position in opposition to the application. Yet, there can be no doubt that the position has now changed and that the liquidators face a classic intractable conflict between their duty to creditors and their own pecuniary interests - which now exceed the net equity available in the real estate. In order to secure payment of their fees, they know that the company will have to be liquidated. Yet if the 'company' is liquidated, the unsecured creditors will not receive a penny.";
• "The tender documents published by the liquidators on 6th July, 2005 clearly constituted a breach of the spirit of the injunctions granted on 15th June, 2005 and 30th June, 2005 insofar as they purported to offer an option to sell the Footscray property whilst the injunction was on foot. No application had been made to vary the injunctions notwithstanding the fact that his Honour Cummins J had expressly reserve liberty to apply";
• "It is submitted that this Court should carefully scrutinise the conduct of the liquidators in connection with their dealings with the ANZ Bank. It is clearly open to find that the liquidators have conspired with the ANZ Bank to procure evidence which would enable the liquidators to achieve their own objective of expediting the sale of assets notwithstanding the existence of injunctions which restrain the liquidators from selling the assets of the Trust."
204 In relation to the attack by the plaintiff on the decision of the administrators to employ members of the Tiwari family in the business, I accept the evidence of the administrators as to the reasons for their decision. In my opinion they probably made the correct commercial decision in all the circumstances for all of the reasons that they stated in evidence. In particular, having regard to the relatively short time that they reasonably anticipated would elapse between their appointment and the completion of the administration by whatever means, it was likely that it would have been highly disruptive to change the management of the business and remove the members of the Tiwari family from the Footscray property, both in its business and residential aspects. There were of course arguments both for and against the employment of an independent manager but these arguments are relevant only to the wisdom of their decision and not to its propriety. At the stage when they made their decision, I do not think that the findings of Balmford J in her judgment or the allegations and suspicions raised by the plaintiff were such that the administrators were precluded from making the decision that they did make.
205 Even if the administrators are to be regarded as having made the "wrong choice", it was a decision reasonably open to them on commercial grounds and there was no misconduct or negligence involved. I am satisfied that there was no bias towards the Tiwaris involved in the making of their decision nor would a reasonable bystander conclude in the circumstances that they were biased towards the Tiwaris.
206 Criticism was levelled at the administrators not only for their decision to employ members of the Tiwari family in the conduct of the business but also for their failure to subsequently remove them. Mr Vince said that he would have needed cogent evidence of malfeasance or dishonesty before removing the employees from their jobs. He said that the administrators had sent Petersen to Hoppers Crossing because they were concerned by the plaintiff's allegations that part of the business had been transferred there. After Petersen reported back to him Mr Vince said that he formed the preliminary view that the evidence was ambiguous. Mr Vince said that the administrators were not able to get to a position where they could say that the wholesale business formerly conducted by Bharat Traders was duplicated in Tiwari & Co. Mr Vince said that despite the suspicions about Pradeep Tiwari's conduct, they had made the commercial decision to keep him on while recognising the risks in doing so. Mr Vince agreed that a prudent administrator would have had regard to all of the matters brought to his attention by the plaintiff in determining whether to continue to employ a person in the business if those activities had the potential of endangering the revenue of the business, again subject to the proposition that they were "not meant to be heroes either". I took this answer again to be a reference to the difficulties that the administrators foresaw in ousting the Tiwaris from the Footscray property including their residence in the time available to them and to the effect that such action might have on the business.
207 Mr Vince testified that the plaintiff's allegations were always a concern but that he could not deal with them in the context of an administration. Mr Vince said that his object was the stabilisation and preservation, and potentially the sale, of the business and the consideration of a DOCA or appropriate proceedings, possibly for compensation, in a winding up. He said that he had not contemplated renewing the import side of the business in the context of an administration.
208 Mr Horne gave evidence similar to that given by Mr Vince. Mr Horne thought that the business conducted by Tiwari & Co was questionable but could not be fully investigated in the course of an administration. His emphasis was upon procuring a deed of company arrangement or alternatively a winding up in which the various matters raised by the plaintiff could be pursued.
209 Given the likely time frame of the administration, there was in my view not enough time to remove and replace the Tiwaris and little sense in doing so. In fact, the administration ran from 29 April 2005 to 29 June 2005, a period of two months which included an adjournment of the second creditors' meeting. However even if it would have been preferable for the administrators to remove the Tiwaris, this was a matter of commercial judgment and not of propriety. In my opinion the "failure" of the administrators to remove the Tiwaris as employees of the business did not constitute misconduct or real or apparent bias in all the circumstances.
210 There was a considerable attack, in the course of the lengthy hearing, in relation to the alleged failure of the administrators to properly investigate each of the plaintiff's allegations against the Tiwaris. It is significant that this attack was not carried through to Mr Selimi's written or oral submissions. In any event, given the time frame of an administration,[42] I am satisfied that the investigations carried out by the administrators were more than adequate for the purposes of an administration including for reporting to the creditors and assessing the position of the Company. The contents of the administrators' report shows due consideration of the various complaints and allegations made by the plaintiff, many of which have substance as acknowledged by the administrators themselves and, as the administrators state, are appropriate for further investigation and, in the case of any liquidation, appropriate subjects for a public examination of members of the Tiwari family especially Sheela and Pradeep Tiwari.
211 Mr Horne's negative attitude in relation to the payment of the CBA debt by Naresh Malhotra was, I think, rightly criticised. I do not think that it was improper of Mr Horne to advise Mr Kooblal of what was happening. I think that Mr Horne's initial attitude to the change of secured creditor was inappropriate given that the change promised to remove immediate financial pressure from the Company. Mr Horne testified and I accept that at that stage he was more concerned to have a proposal for a DOCA brought forward than be distracted by a change in the identity of the secured creditor. Mr Horne's conduct was however peripheral and a minor aspect of the administration and had no practical consequences. I am satisfied that his conduct does not constitute, or confirm the existence of, any real or apparent bias towards the Tiwaris nor, as contended on behalf of the plaintiff, involve any consideration by Mr Horne of voting power at the forthcoming meeting.
212 Mr Selimi put as his principal basis for a finding of misconduct that Messrs Vince and Horne had manifestly failed to impartially discharge their duties as between the unit holders by giving clear preferential treatment to the Tiwari family. I reject that submission. I am satisfied that Messrs Vince and Horne made their decisions bona fide in the interests of the creditors and of the Company, as they saw them, and without any intent to favour the Tiwari family. Nor do I think that a reasonable bystander, knowing the facts and circumstances, would have an apprehension that Messrs Vince and Horne were acting other than impartially as between the unit holders. I saw no evidence that Messrs Vince and Horne harboured a grudge against the plaintiff. I do not accept that they permitted the Tiwaris to "run riot with the business" or to "continue their rampage against the Company". Indeed, I am not satisfied on the evidence that the members of the Tiwari family who were employed in the business after the commencement of the administration did "run riot with the business" and, insofar as there was any rampage by the Tiwaris against the Company prior to the commencement of the administration, I am not satisfied that such rampage continued. There were many allegations made by the plaintiff concerning the conduct of the Tiwaris prior to the commencement of the administration, that I mention elsewhere, but as I understand it the main allegation of substance made in relation to the conduct of the business after commencement of the administration is an allegation that cash was being taken from the proceeds of sales without reporting the same to the administrators. For reasons that I have stated elsewhere in this judgment, I am not satisfied, directly or as a matter of inference, on the evidence adduced in this case that there was any cash taken dishonestly by any members of the Tiwari family who were employed or involved in the business after the commencement of the administration.
213 I will deal separately with the alleged insolvency of the Company. However I do not accept Mr Selimi's submission that the conduct of Messrs Vince and Horne has in any way contributed to the worsening of the financial condition of the Company in the period after their appointment as administrators. Of course, a significant factor in the worsening of the Company's financial position was the incurring of liability for costs, expenses and indemnities, to the administrators and then to the liquidators but this liability necessarily arose as a result of their appointment, the performance of their duties and the running of the business, and not as a result of misconduct. Further, as I have already mentioned, there has been no attack on the quantum of their remuneration and expenses as such.
214 Mr Selimi submitted in substance that the administrators had acted in a way that did not serve the objects of Part 5.3A of the Act. Section 435A of the Act provides:
"The object of this Part is to provide for the business, property and affairs of an insolvent company to be administered in a way that:
(a) maximises the chances of the company, or as much as possible of its business, continuing in existence; or
(b) if it is not possible for the company or its business to continue in existence - results in a better return for the company's creditors and members than would result from an immediate winding up of the company."
215 I am satisfied that no person put forward to the administrators a viable proposal for a DOCA and that, without a DOCA, there was no prospect of the Company continuing in existence given its financial position (see below) and given the irretrievable breakdown of the relationship between the unit holders in the Trust. Further, without a DOCA, there was no prospect of a better return for the Company's creditors than that available in a liquidation. Therefore, without a DOCA, the only chance of the business continuing in existence, consistent with the interests of the creditors, was for it to be sold at the best price obtainable. The liquidators correctly recognised the foregoing matters and acted accordingly. They were still recommending further time to consider a DOCA at the second creditors' meeting when the resolution for winding up was passed contrary to their recommendation. Their recommendation for an adjournment was reasonable although, in my opinion, a further adjournment was most unlikely to result in anything other than a winding up. I am satisfied that the liquidators acted in accordance with the objects of Part 5.3A of the Act and gave proper consideration to the matters which they were required to consider as referred to in s.439A(4)(b) of the Act.
216 In summary, I do not think that the administrators' conduct of the administration constituted misconduct at all, either as a whole or in part, in any of the ways alleged by the plaintiff. I am satisfied that the administrators were not guilty, in any event, of such misconduct as would justify depriving them of their fees. The degree of misconduct required for that purpose is in my view such misconduct as would have justified an order for their removal or replacement as administrators.
217 Mr Selmi's criticism of the specific conduct of Messrs Vince and Horne in their capacity as liquidators as opposed to administrators was more limited. His submissions both as to lack of impartiality and otherwise concentrated upon their conduct as administrators and tended to consequentially embrace their conduct as liquidators. This can be understood because this application to terminate the liquidation was instituted not long after the commencement of the winding up and the liquidators have been unable to progress the winding up due to the existence of this proceeding and to the granting of a number of interlocutory injunctions by this Court. Three specific matters involving the liquidators were the subject of criticism.
218 First, there was criticism of the tender documents published by the liquidators on 6 July 2005 for the sale of the business insofar as there was a purported offer of an option to purchase the Footscray property while there were injunctions in place restraining the sale of the Footscray property. I am satisfied that the liquidators bona fide and reasonably, in the interests of creditors, desired to sell the business as it was suffering continuing losses and bona fide and reasonably considered that such an option should be offered in order to obtain the best price. The submission is that this was in breach of "the spirit" of the injunctions. Perhaps it was, but I do not think that any misconduct is involved and in any event the liquidators subsequently sought directions from the Court.[43]
219 Second, there was a criticism of the liquidators' conduct in impeding the attempt by Naresh Malhotra to take possession of the Footscray property in his capacity as a secured creditor on 13 July 2005 and in challenging his right to do so. I am satisfied that Mr Horne's and/or Petersen's conduct was motivated by a wish to ensure that Naresh Malhotra was lawfully entitled to take such possession although I would infer that he, and Petersen, were concerned that the value of the business might be affected by the entry into possession of a mortgagee. In any event I do not think that there was any real or apparent bias towards the Tiwaris involved in this conduct. Again it was peripheral and short-lived.
220 Third, the conduct of Petersen in providing the ANZ with a draft letter stating the bank's wish to have its debts paid in full was in my opinion wrongly characterised as an attempt to have the ANZ call up its debts, contrary to the interests of the Company. In my opinion it was nothing more than a justifiable exercise in obtaining evidence of the bank's wish to be repaid. Even if, contrary to my view, the conduct was inappropriate, it was again peripheral and of little consequence.
221 The general findings that I have made in relation to the conduct of Messrs Vince and Horne as administrators are also applicable to their conduct as liquidators. Looking at their conduct in both capacities, or in either capacity, I am satisfied that there was no misconduct, whether by way of negligence, misleading conduct, lack of impartiality or otherwise, such as ought deprive them of their fees and no misconduct such as would justify their removal or replacement as liquidators.
222 In reaching the conclusions above stated as to the conduct of the administrators and liquidators, I have taken into account in addition to Mr Selimi's written and oral submissions all of the other matters of complaint against them contained both in the originating process itself (as grounds) and as extensively detailed in the plaintiff's first affidavit, although many of these matters were not dealt with in final submissions.
Termination of the liquidation
223 The onus lies on a plaintiff to satisfy the Court that a winding up should be terminated, especially where the company concerned is insolvent.[44] The power to make an order is discretionary and there must be some positive case made out or some valid reason established as to why it is appropriate to terminate the winding up.[45] The Court should consider the interests of the creditors, the position of the liquidator, the attitude of the members (or, as in this case, the unit holders in the Trust) and the public interest.[46]
224 It is clear in this case that the Company is unable to make real inroads into payment of its debts that have fallen due without realisation of its assets.
225 Further, given my conclusion that the conduct of the administrators and liquidators was not such as to deprive them of their fees and expenses, the total financial position of the Company is, regrettably, a parlous one whether this is viewed on a "cashflow" or on a "balance sheet" basis. As Mr Selimi in effect conceded, if the administrators and liquidators were entitled to their fees and expenses it would be hard to justify a termination of the liquidation given the overall financial circumstances of the Company.
226 However, in deference to the time and effort expended on the issue, I now consider further whether the financial position of the Company is such that the winding up should be terminated. In this regard it is appropriate to consider the expert evidence of Brian Norman Jones, a chartered accountant called as a witness on behalf of the plaintiff.
227 Mr Jones is a fellow of the Institute of Chartered Accountants, a registered company auditor and has an MBA and a Certificate in Forensic Accounting from Monash University. Mr Jones was retained on behalf of the plaintiff to assess the solvency of the business. Mr Jones was employed by BP Finance Australia and BP Australia from 1984 to 1990 in important corporate accounting areas. Before that he had a number of primarily audit roles of some importance with other large corporations. He was a member of a small accountancy business from about 1990 and the services provided by that business ranged over a wide area but included some forensic accounting. His present business through his company "Ahead for Business Pty Ltd" commenced on 1 December 2000.
228 Mr Jones swore an affidavit on 8 August 2005 which was a mixture of background facts, conclusions and argumentation.
229 Mr Jones pointed out that there was no suggestion that the business was insolvent in March 2005. It had been valued in September 2004 at $390,000 by an independent valuer. The sales had steadily grown from the year 2000 ($513,749) to the year 2004 ($1,453,175). The net profit had grown from the year 2000 ($34,666) to the year 2004 ($150,072) - that was a slight decrease from the previous year.
230 Mr Jones' affidavit referred to a number of events which needed to be taken into account but the way they were set out and bundled together was somewhat confusing. Mr Jones referred to the Tiwari & Co business, the retrospective wages claim and certain claims for rental used to adjust the financial results of the business. Mr Jones attacked the independence of David Mond. He referred to the reaction of the banks to the litigation. He argued about the purpose of the Court of Appeal recommendation. Mr Jones referred to various matters raised by the plaintiff for investigation. No doubt some of the matters to which Mr Jones referred were relevant in some way to the fact of a profitable business becoming insolvent.
231 Of more significance, Mr Jones suggested that there was an inference that the takings of the business had been affected as a result of diversion of business to Tiwari & Co. However that may be, I would agree with his conclusion, namely, that "the complex transactions and circumstances surrounding the insolvency of the ... business and its liquidation warrant detailed investigation."
232 Mr Jones' financial analysis is of more relevance than his general "forensic" evidence. The differences between his figures and those of the liquidators are not hard to identify and were explained in his evidence.
233 Mr Jones swore a further affidavit on 23 September 2005 and produced as an exhibit an expert report in relation to the solvency of the Company and the Trust. He expressed the opinion that the business was solvent in 2004 and earlier but that its financial position had been seriously affected by a diversion of cash and stock, by accounting errors in relation to the Malhotra profit claim and the Tiwari Family Trust loan balance, by the costs and projected costs of the administrators, by employees' claims and by the use of funds for the personal purposes of the Tiwaris.
234 Mr Jones suggested (as do the liquidators) that there are a number of reasons why the alleged employee entitlements should not be recognised. These reasons or some of them may have validity, but I do not regard it as appropriate to determine those questions. The validity of the claims can only be determined in a proceeding between the relevant employees and the Company or in the proof of debt process. Notwithstanding the criticisms of these employee claims, I do not think that the possibility of successful claims on a quantum meruit basis can be disregarded.
235 Mr Jones explained how the plaintiff's claim for one-half of prior year profits eliminated any entitlement by the Tiwari interests to any further distributions from the Trust.
236 Mr Jones suggested that the Velos & Davis claim may not be a debt of the Company.[47] That is quite possible, but it must be remembered that Velos & Davis, rightly or wrongly, were acting for the Company in the first Supreme Court proceeding. The firm may not have a valid claim against the Company, alternatively, if it does, the directors may be at fault for actively involving the Company, as trustee, in the litigation. Again the Velos & Davis claim can only be determined in a proceeding between the Company and Velos & Davis or in the proof of debt process. I note further that the Company may possibly have a claim for repayment of costs paid to Velos & Davis but this can only be determined if a claim is brought by the Company.
237 Mr Jones said that the Company might have an equitable interest to the extent of forty-two per cent in the Point Cook property, alternatively a right to repayment of the sum of $200,000 plus interest plus costs. This is probably correct but is yet to be determined.
238 Mr Jones suggested that claims by or payments to accountants, solicitors and others of $66,879 might not be debts of the Company. This may be wholly or partially correct.
239 Mr Jones said that there were "strong indications" that there had been a diversion of cash and stock from the business. Mr Jones provided analyses which he said showed significant discrepancies in stock and unexplained falls in takings of the business. These matters are difficult and far from obvious, as his opinion indicates, and can only be determined in litigation between the Company and those alleged to have diverted these resources.
240 Mr Jones' summary of the Trust's statutory profit and loss statements shows that the business reached its peak as regards profits in 2003 and, despite an increase in sales in 2004, that the profits dropped from then on.
241 Mr Jones' analysis of sales from 1 January 2005 to 11 September 2005 shows a greater fall in cash sales than the corresponding fall in debit and credit card sales (referred to in the business as "EFTPOS" sales). This may be of significance.
242 In an addendum to his report prepared in response to the liquidators' final report, Mr Jones identifies the following differences between his analysis and that of the liquidators:
(2) Costs of $89,619 reducing the value of the equity in the real estate;
(3) Huge increase in liquidators' costs;
(4) Incorrect inclusion of Tiwari loan;
(5) Trade creditors included at $165,365;
(6) Video deposits $69,740;
(7) Administrators' creditors $217,429 (which includes legal costs and trade creditors).
243 In examination in chief, Mr Jones testified that the Company was solvent and that in reaching that conclusion he had taken into account an offer to provide the sum of $215,000 by Naresh Malhotra and the obtaining of funds from the sale of, inter alia, the Point Cook property and the Hoppers Crossing property. The matters that Mr Jones thus took into account in my view render suspect his conclusion because there are no funds readily realisable by the Company from the sale of the Point Cook or Hoppers Crossing properties. Obtaining funds from these sources would appear to necessitate litigation between the Company and the registered proprietors of the said properties (which properties are also encumbered). In addition, I do not consider that it is appropriate to take into account the offer from Naresh Malhotra for the reasons stated later below.
244 Mr Jones produced a balance sheet as at 16 June 2005[48]. This balance sheet showed net assets or a surplus of $695,885. The surplus appeared to be created by including an equity in the Point Cook property of $215,000 and an amount due by the Tiwari Family Trust of about $496,000. In addition, the administrators'/liquidators' costs were understated at $100,000.[49] Mr Jones made no allowance for a video deposits liability. The said amount of about $496,000 due by the Tiwari Family Trust is explained in Appendix 14 to Mr Jones' report. It includes $39,500 for the deposit on the Hoppers Crossing property, $40,000 in relation to the settlement of the Hoppers Crossing property, payments to Mond, an estimate of stock diversions of $124,000, an item for the motor vehicles of the Tiwaris ($130,000) and various other withdrawals and items. It seems that most, possibly all, of the amounts making up this sum of $496,000 might well be the subject of dispute and possibly litigation between the Company and the various persons and entities involved.
245 Mr Jones also eliminated any debt of the Company to the Tiwari Family Trust because of the plaintiff's claim to about $300,000 as his share of the net profits. I would agree that the principle underlying this part of Mr Jones' calculation appears to be correct and his evidence was not challenged on this point.
246 Mr Jones' opinion as to the solvency of the Company is undermined because it depends upon the inclusion of a number of substantial items which do not represent readily realisable assets of the Company. Most of them are, at best, alleged choses in action that appear to be in dispute and would probably have to be established in litigation and would be subject not only to the delays, costs and difficulties of litigation but also subject to the usual contingencies which affect the recovery and enforcement of debts that are unsecured.
247 Both the plaintiff and the liquidators provided the Court with analyses of the asset and liability position of the Company as at the time of the hearing. The analyses provided by the plaintiff are to be found in Mr Jones' evidence and in Mr Selimi's submissions. The analyses provided by the liquidators are to be found in their last report[50] and in Mr Randall's submissions.
248 The liquidators' last report is exhibit "SH-1" to the affidavit of Mr Horne sworn 23 September 2005. The liquidators estimated that there was a deficiency in the amount available for creditors of $897,764 (going concern basis) and $952,164 (auction realisable basis). After allowing for payment of the formerly CBA secured debt and that portion of the ANZ debt representing a loan utilised by the Company, the principal liabilities giving rise to the deficiency were said to be administrators'/liquidators' creditors ($217,429) and administrators'/liquidators' remuneration ($289,504). However, the liquidators' estimate made no provision for a number of potential liabilities[51], including the following:
(i) Tiwari employee claims based on the Crossroads report
(ii) Claim by Velos & Davis
(iii) Claims by other caveators over the Company's real estate
(iv) Claim by the ANZ under the guarantee of the loan relating to the Hoppers Crossing property.
On the other hand, the liquidators' estimate made no provision for a number of potential claims or recoveries, including the following:
(i) Claim for recovery of any amounts paid to the ANZ pursuant to the guarantee
(ii) Claim to an interest in the Point Cook property
(iii) Claims relating to alleged misappropriations of moneys and stock from the business
(iv) Claims for repayment of amounts allegedly wrongly paid to solicitors and accountants.
249 There is a good deal of uncertainty about many of the figures produced by each of the parties but it is convenient to refer to annexure B to Mr Selimi's written submissions. On page two of annexure B it appears that there is not much dispute about the total value of the Company's assets, after allowing for the payment of the debts[52] secured upon them. Such differences as there are appear to stem from two matters. The first is the question of the value of the Hillside property and the Footscray property[53]. The second is whether the Company's so-called "equity" in the Point Cook property ($215,000) should be included as an asset. Apart from the latter item, the assets (after payment of the secured debts) are valued at somewhere between $445,000 (the plaintiff), $412,000 (Mr Jones) and $328,000 (the liquidators). These totals include the net value of the real estate, and the business assets on a going concern basis (cash at bank, stock and plant and equipment) but without any allowance for goodwill. For the sake of the argument I will adopt Mr Jones' figure of $412,000 for the assets. I am not satisfied on the evidence that the "equity" in the Point Cook property is a readily realisable asset of the Company although it may well be a legitimate claim. Turning to the liabilities the position, as best as I can ascertain it, is as follows:
Administrators'/Liquidators' creditors (excluding legal costs and expenses since 20 September 2005)
250 On this approach I am satisfied that the Company has insufficient resources to pay its priority creditors in full and is unable to pay its ordinary unsecured creditors. There is a deficiency (excluding legal costs and expenses of about $135,000 incurred since 22 September 2005) of about $300,000. Even if it is assumed that there is some value attached to the goodwill of the business on sale, there would remain a substantial deficiency.
251 In the above assessment I have disregarded the plaintiff's claim against the Company of over $300,000 in respect of the settlement of his entitlement to a share of the past net profits of the Trust up to 30 June 2003, because Mr Selimi said that this sum would be claimed pursuant to the judgment of Balmford J against Sheela Tiwari personally. I note that the plaintiff also has claims for subsequent years. However, there are other possible liabilities of the Company. For example, there are claims for wages by the members of the Tiwari family who were employed in the business for some years without pay. There are also the claims of Velos & Davis and of Mond which, although they face obvious difficulties, cannot be assumed to be without any substance at all. As I mentioned when discussing the evidence of Mr Jones, the validity of these claims cannot be entirely dismissed. In addition, the Company has a contingent liability to the ANZ under a collateral guarantee given in relation to the monies borrowed for the purpose of purchasing the Hoppers Crossing property.
252 It is possible of course that, in due course, the current deficiency of the Company will be eliminated by virtue of various claims that the Company may pursue and recover as against the members of the Tiwari family, but these claims are not in the category of readily realisable assets.
253 In the end, I am satisfied that the Company is substantially insolvent and lacks sufficient financial stability[56] to be "re-launched". In my opinion the application for termination of the liquidation should be refused on that ground alone.
254 Mr Selimi sought to overcome the difficulties posed by the present financial position of the Company by reliance upon the offer of Naresh Malhotra to provide substantial finance in some form or other in order to save the Company and/or the business. The evidence from Naresh Malhotra as to what he was prepared to do was in my opinion, although sincere, too uncertain. He said that in the event that the liquidation was terminated he was prepared to provide financial assistance but that he had not given it his final thought. He said that he was prepared to pay out MIG Properties Pty Ltd (the company associated with Mond that paid him out in respect of the CBA debt). In cross-examination by Mr Randall, Naresh Malhotra indicated that for this purpose he was prepared to help out to the tune of $215,000 to $250,000 or thereabouts and that he was also (apparently) prepared to pay out the ANZ. Various other liabilities were mentioned to him which led him to say, "I have approximately $1M available to me in assets and finance so I haven't ... gone into specific sums but if it is over $1M I may have some problems, but under $1M I am reasonably confident I should be able to meet whatever the amount is and if I have to do it I will do it." Naresh Malhotra explained that he had $200,000 "in cash equity" and a property worth $500,000 and an interest in an estate of his recently deceased father worth over $1M. He said that his funds were available on the basis that the plaintiff controlled the business and that, if the plaintiff did not control the business, he would have to seek legal advice. The plaintiff also made assertions about his intention, in certain circumstances, to pay out trade creditors of the Company.
255 It would be quite unsatisfactory to terminate the liquidation based upon such proposals and assertions. There are a variety of matters that would need to be dealt with for a proposal to become workable including precise terms covering trade creditors, what to do about various other liabilities or alleged liabilities of the Company, what to do about various claims of the Company and a resolution of the present ownership and control of the Trust. The Act perhaps provides an appropriate mechanism in that the liquidators are entitled to appoint an administrator pursuant to s.436B(1) of the Act and might do so if a suitable DOCA were formulated. The difficulties of constructing a suitable DOCA cannot be underestimated. It is not appropriate to return the Company to the control of its directors in the hope that Naresh Malhotra's present "proposal" might come to fruition in some form or other.
256 In addition to the foregoing, there are other factors militating against the termination of the liquidation. Given the irretrievable breakdown of the relationship between the plaintiff on the one hand and Sheela Tiwari (or the Tiwari interests) on the other hand, this Trust has no future in its present ownership. There is no prospect in all the circumstances, so far as presently appears, that one party will buy the other party out. The return of the Company to the Tiwari directors can only lead to further disputation and litigation. One might envisage an application in some circumstances by one or other of the parties to remove or replace the Trustee or to appoint a receiver to the Trust but, given the financial position of the Company, these steps would not appear to be realistic until the Company's liabilities are paid and the Company's claims resolved.
257 The main concern of the plaintiff has not so much been the preservation of the Company, which is a mere trustee, but the saving of the business and getting it under his control. The steps taken by the plaintiff have not, as it seems to me, been well adapted to that purpose. In any event, I consider that the administrators and liquidators were right all along in proposing the sales of the real estate and of the business and it is unfortunate that this litigation has delayed and prevented that from occurring with the consequent accumulation of further expenses and losses. It was and remains in the best interests of the creditors and, in my view, of the unit holders as well that the business (and the real estate) of the Company be sold for the best price obtainable and that the liquidators complete their foreshadowed investigations and initiate all appropriate recovery actions in due course.
258 Although I have not mentioned all of the many points made, I have read and considered all of the submissions in writing of Mr Selimi and I am unpersuaded by them that there is any good reason to terminate this winding up. The motives and stratagems of the Tiwari family, even if reprehensible, do not affect my conclusion.
The relief sought in the originating process
259 While the principal submissions relied upon by the parties have been addressed above, it is now appropriate to deal briefly with each of the paragraphs A to W in the originating process.
260 Paragraph A(i) to (iv) of the originating process is concerned only with interlocutory injunctions and does not arise. Paragraph A(v) seeks an injunction to restrain the liquidators from selling the assets of the Trust. That application was not pressed and cannot be supported.
261 Paragraph B of the originating process seeks a stay or termination of the winding up of the Company. I have dealt with that application upon the principal grounds advanced at trial and, for the reasons stated, that application is refused. Grounds (ii), (iii), (iv) and (v) have not been established and, even if established, would not have persuaded me to order the termination of the liquidation.
262 Paragraph C of the originating process seeks a declaration that the resolution for winding up was null, void and of no effect and should be set aside. I have dealt with and rejected that application insofar as it relies upon s.1321 of the Act. Apart from s.482 of the Act, the basis of seeking such a declaration was not explained but I will make the following further comments. The factual basis of ground (iii) is refuted by the contents of the minutes of the second creditors' meeting on 29 June 2005. Ground (iv) is true but does not entitle the plaintiff to the relief sought. As to ground (v), in my view the resolution to wind up the Company was in the interests of the creditors as a whole. As to ground (vi), the resolution was in my view in the interests of the unit holders but, if not, the interests of the creditors take precedence. Ground (vi) (where second appearing) does not really make sense and is not made out, either as to the improper and ulterior purpose alleged or as to how the alleged design to deny the plaintiff the fruits of his judgment or control the assets of the Company could be achieved by a winding up. Ground (vii) is not established nor does it entitle the plaintiff to the relief sought. The factual bases of grounds (viii) and (ix) are not established. Ground (x) identifies two errors in the first report to creditors but is otherwise not established and provides no basis for the relief sought. Ground (xi) provides no basis for the relief sought and is fallacious in that it ignores the statutory basis for the administration under Part 5.3A of the Act. Grounds (xii) and (xiii) were not pressed and in any event are spurious. Ground (xiv) is irrelevant and provides no basis for the relief sought. Ground (xv) is not established and would provide no basis for the relief sought even if established. I reject ground (xvi) because it is taken out of context and the administrators' advice was in my opinion correct when read in context.
263 The relief sought in para D of the originating process does not arise.
264 The relief sought in para E of the originating process is refused for reasons already stated.
265 The relief sought in para F of the originating process was not pressed. Further, the relief sought in para F(i) does not arise in the context of the imminent sale of the business. The relief sought in para F(ii) is unnecessary in the context of the liquidation. Even if the present directors were removed, there would be no valid reason to replace them with the plaintiff.
266 The relief sought in para G of the originating process was not pressed and does not arise and no damages were sought and no basis for the same made out.
267 The relief sought in para H of the originating process does not arise.
268 As to para I of the originating process, leave to the plaintiff to commence a derivative proceeding against the directors of the Company is refused. There is no good reason why this matter should not be left to the liquidators at this stage. There are clearly a considerable number of potential claims against the directors that need to be evaluated, many of which the liquidators have already assessed as of some validity and strength.
269 As to para J of the originating process, leave is refused.
270 Paragraph K of the originating process (relating to Mond) is stayed by a Court order.
271 Paragraph L of the originating process is refused.
272 Paragraph M of the originating process does not arise.
273 Paragraph N of the originating process is refused for the reasons already stated.
274 Paragraph O of the originating process was not pressed.
275 Paragraph P of the originating process, covering applications under s.1321 of the Act, has been dealt with so far as relevant but otherwise does not arise and no basis is made out therefor.
276 Paragraph Q of the originating process does not arise.
277 Paragraph R of the originating process, relating to s.233 of the Act, was not pressed. Further, the basis for an order transferring Sheela Tiwari's shares in the Company to the plaintiff is not established and such as order is of no utility in the context of the liquidation of a company that is a trustee.[57]
278 Paragraph S of the originating process, seeking a transfer to the plaintiff of Sheela Tiwari's units in the Trust was not canvassed in the context of this proceeding and is refused, without prejudice to the plaintiff's right if any to seek that relief as and when he deems fit, in an appropriate proceeding.
279 Paragraph T of the originating process does not arise.
280 Paragraph U of the originating process, seeking an order that the Trust be wound up and the Court appoint a receiver in respect thereof, was not pressed but liberty to apply in respect thereof is reserved. At present, if a receiver were to be appointed to the Trust, I am prima facie of the view that the liquidators should be appointed.
281 Paragraph V of the originating process does not arise.
282 As to para W of the originating process, all questions of costs in this and any related proceeding will be reserved and a date will be fixed in February 2006 to argue any questions of costs.
Orders
283 For the foregoing reasons, the originating process is dismissed and the injunctions granted against the liquidators, in this proceeding and in all related proceedings, restraining them from selling the real estate and the business of the Company and of the Trust are discharged. In particular the injunctions to that effect granted by Cummins J in paragraph 3 of his order dated 30 June 2005 is discharged and the injunction granted by me in para 1 of the order dated 10 August 2005 in proceeding no. 7263 of 2005 is discharged.
284 The question of any enquiry as to damages arising under any undertaking as to damages given by the plaintiff is adjourned to the same date upon which questions of costs will be dealt with.
[1] The plaintiff is aged 44, having been born in India in 1961.
[2] Sheela Tiwari is aged 39, having been born in India in 1966.
[3] Markandey Tiwari had been married to Sheela Tiwari by a Hindu ceremony but they were divorced in 1992. The defendant Pradeep Tiwari is their son - he was born in India in 1983.
[4] The four children of Sheela and Markandey Tiwari.
[6] I note that in the judgment dated 4 March 2005 the plaintiff's entitlements are referred to as "joint", no doubt as a result of the terminology used in the Statement of Assets and Liabilities. However the plaintiff, following the Court's judgment in the first Supreme Court proceeding, became registered as the several holder of one-half of the units in the Trust.
[7] This was referred to a Master for assessment.
[8] Her Honour's reasons for the costs order appear from a revised transcript of judgment dated 4 March 2005.
[9] Likewise irrelevant is further material as to the plaintiff's thought process contained in para 11 of the plaintiff's first affidavit.
[10] See s.436A(1) of the Act.
[11] In para 10 of the plaintiff's first affidavit, the plaintiff deposes that "the parties privately agreed to the appointment of joint administrators as a temporary measure to preserve the subject matter of the litigation pending the determination of the appeal". This statement is in inadmissible form and, in any event, a private agreement of the parties (even if proved) could not override the provisions of the Act.
[12] Of course the plaintiff disputes those claims and the administrators/liquidators have expressed the view that they probably cannot be substantiated.
[13] See s.437A(1) of the Act.
[14] See s.437C(1) of the Act.
[15] See s.437C(2) of the Act.
[17] Petersen was a senior manager employed by the administrators' firm.
[19] See s.439A(2) of the Act.
[20] Presumably this was a reference to the proposal from David Mond & Associates.
[21] A letter from the plaintiff to the administrators dated 2 June 2005 of 8 pages in length raised many specific matters which the administrators were requested to investigate.
[22] There is additional evidence before the Court that there was nothing in the Company's accounts to support that explanation and no breakdown of the sum of $100,000 had ever been provided to the administrators by the directors. If the said sum was in lieu of unpaid wages it might in any event affect the wages claim to which reference is made elsewhere.
[23] At trial Pradeep Tiwari produced invoices from suppliers said to have been paid from this cash withdrawal. The attempted reconciliation was not entirely satisfactory but I consider that there was prima facie credible evidence of the use of a good part of these funds to pay suppliers.
[24] On 16 June 2005 Mr Chivers telephoned Mond on behalf of the administrators and requested all Company books and records which were in his possession. Mond asked for a letter. On the same date the administrators forwarded a letter to Mond requesting all books and records of the Company in his possession including business activity statements and bank statements and the letter referred to s438C(1) of the Act. Mond replied by letter dated 21 June 2005 stating "Please advise the 'Act' referred to in your letter in order that I may obtain appropriate advice concerning the request". Chivers responded the next day with the astounding information that the "Act" concerned was the Corporations Act 2001. Mond then further replied by letter saying that he could now respond to the request and did so as follows: "Please be advised that your request was not made in the requisite form pursuant to the Act and is therefore not a valid request." On 29 June the administrators served a formal notice under the Act on Mond.
[25] The minutes do not disclose whether Mr Horne explained the circumstances in which he might be entitled to exercise a casting vote.
[26] This was the amount claimed by the plaintiff as his share of past profits pursuant to the judgment of Balmford J.
[27] The minutes say "June" but this must be an error.
[28] It was common ground, as I understand it, although the creditors had no power to specify in the resolution the grounds for winding up, that the resolution was not invalidated by the inclusion of such grounds.
[30] Using round numbers.
[31] Except in the week ending Sunday 20 March 2005 when the premises were closed over the weekend.
[32] By letter dated 13 September 2005, BTK on behalf of Pradeep Tiwari, Markandey Tiwari and Sheela Tiwari advised the solicitors for the ANZ that: "Our client intends arranging with the liquidators of [the Company] for the due settlement of all liabilities. Proceedings in the Supreme Court have been listed for 26 September 2005 ... The liquidators and our client will be seeking an order from the Court directing that the properties of [the Company] be sold by the liquidators and that ANZ Bank be paid forthwith. To that end, please let us have your final figures in respect of all liabilities owing to your client."
[33] Leave was sought at a very late stage to file an affidavit of Oshry purporting to identify the undisclosed party, but leave was refused.
[34] A bill of costs from BTK dated 24 February 2005 and covering costs for the period 17 February to 23 February 2005 was addressed to Sheela Tiwari and the Company. Subsequent bills dated 28 February 2005, 9 March 2005, 18 March 2005 and 29 March 2005 were all addressed to Sheela Tiwari and also to the Company. A bill dated 8 April 2005 was addressed to Sheela Tiwari only. A bill dated 11 April 2005 was addressed to Sheela Tiwari and the Company. A bill of costs from BTK dated 22 April 2005 was addressed to Sheela Tiwari only, and was headed "Supreme Court Matter" and covered professional costs and disbursements from 7 to 22 April 2005. On the same date a bill in identical form and for the same amount was addressed to the Company (although I note that the reconciliations at the end of the bills differ slightly). The same or a similar bill addressed to the Company but dated 9 May 2005 was sent to the administrators under cover of a letter of that date saying that "we attach our bill of costs and look forward to hearing from you in regard thereto". Bills from BTK dated 5 May, 26 May and 27 May 2005 were addressed to Sheela Tiwari only.
[35] These names all appear to refer to the same person or business.
[36] [1996] FCA 1384; (1996) 144 ALR 159 (Federal Court of Australia, Tamberlin J).
[37] [1996] FCA 1384; (1996) 144 ALR 159, 163.
[38] [1996] FCA 1384; (1996) 144 ALR 159, 164.
[39] [2003] NSWSC 467; (2003) 45 ACSR 612, at [123]; see too Multi-Core Aerators Ltd v Dye [1999] VSC 205 at [38]- [39].
[40] [2003] NSWSC 467; (2003) 45 ACSR 612, at [133].
[41] I do not purport to provide a comprehensive summary because references to the conduct of the administrators and the liquidators are peppered throughout the written submissions which extend over 122 pages (including footnotes).
[42] See Deputy Commissioner of Taxation v Pddam Pty Ltd (1996) 14 ACLC 659, 668-669 per Heerey J.
[43] This resulted in an interlocutory injunction restraining the sale of the business pending the determination of the directions application and ultimately pending the determination of this proceeding.
[44] Re Mascot Home Furnishers Pty Ltd [1970] VicRp 78; [1970] VR 593; Re Data Homes Pty Ltd [1971] 1 NSWLR 338; Re Robana Properties Pty Ltd (1987) 5 ACLC 127.
[45] See Aetna Properties Ltd (in liq) v GA Listing & Maintenance Pty Ltd (1994) 13 ACSR 422, Anderson v Palmer [2002] NSWSC 192 and In the matter of Elfah Pty Ltd (in liq) [2002] FCA 1469 at [9] per Finkelstein J.
[46] See generally In the matter of Elfah Pty Ltd (in liq) [2002] FCA 1469 and cases therein cited.
[47] Correspondence (including a letter dated 6 September 2004 enclosing Terms of Engagement, and also accounts, from Velos & Davis to their clients relating to the first Supreme Court proceeding, so far as the evidence shows, was commonly addressed to Sheela, Markandey and Pradeep Tiwari, or one or more of them. It does not appear that any of the accounts were addressed to the Company. The accounting records of Velos & Davis appear to name the client as "Mrs S Tiwari and Mr Markandey". On the other hand, an appearance was entered by Velos & Davis as solicitors for the Company (as well as the other defendants) in the first Supreme Court proceeding and numerous court orders record counsel as having appeared for the Company in addition to the Tiwari defendants. Further, although the statutory demand was withdrawn, an affidavit was sworn by a member of the firm deposing to the fact that the Company was indebted to the firm. It appear that there are questions to be tried.
[48] Exhibit "K".
[49] Mr Jones noted an additional $200,000 claimed in the three month period between June and September 2005. This is perhaps not surprising given the degree of activity, including litigation, that occurred in this period.
[50] This purported to be a s.482(2) report but I note that the Court had not directed such a report.
[51] A number of these are the subject of comment in the Liquidators' Report (Exhibit "SH-1").
[52] I note that interest continues to run on these debts.
[53] There is no sworn evidence of the value of the real estate although a written valuation was tendered without objection that supports the liquidators' position.
[54] This amount includes accrued utilities ($3,336), advertising ($10,662), legal fees ($84,840), outstanding invoices payable to trade suppliers ($72,689), PAYG payable ($15,084), valuation costs ($9,974) and wages, leave and superannuation entitlements ($20,844).
[55] As at 16 September 2005 the professional fees claimed by the administrators/liquidators totalled $266,027.10 (plus GST of $26,602.71) and out of pocket expenses totalling $3,731.95 - after allowing for an amount paid of $6,857.40, the administrators'/liquidators' claim as at 16 September 2005 was $289,504.36.
[56] See Anderson v Palmer [2002] NSWSC 192 (Barrett J).
[57] As to oppression proceedings where the company is a trustee: see McEwen v Combined Coast Cranes Pty Ltd (2002) ACSR 244 at [44]-[46] per Young CJ in Eq.
# Re S & D International Pty Ltd (in liq); Malhotra
Tiwari \[2005\] VSC 496
(1996) 144 ALR 159