Supreme Court of WA|2010-01-21|Before: Simmonds J

PROFESSIONAL SERVICES OF AUSTRALIA PTY LTD -v- COMPUTER ACCOUNTING AND TAX PTY LTD [2010] WASC 38 (21 January 2010)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : PROFESSIONAL SERVICES OF AUSTRALIA PTY LTD -v- COMPUTER ACCOUNTING AND TAX PTY LTD [2010] WASC 38

MATTER : Computer Accounting and Tax Pty Ltd (ACN 009 470 491) (in liq)

BETWEEN : PROFESSIONAL SERVICES OF AUSTRALIA PTY LTD

DONALD CAMPBELL-SMITH AS EXECUTOR OF THE ESTATE OF MARTIN BANNING

Corporations - Whether provisional liquidator should be appointed of company in members' voluntary winding up - Whether if provisional liquidator should be appointed the person so appointed should be the liquidator in the members' voluntary winding up

Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230

Citrix Systems Inc v Telesystems Learning Pty Ltd (in liq) (1998) 28 ACSR 529,

Computer Accounting and Tax Pty Ltd v Professional Services of Australia Pty Ltd [No 3] [2010] WASC 2

Deputy Commissioner of Taxation v Tull Reinforcing Pty Ltd [2006] FCA 810; (2006) 153 FCR 394

Domino Hire Pty Ltd v Pioneer Park Pty Ltd [2003] NSWSC 496

Khoury v Rosemist Holdings Pty Ltd [1999] FCA 458

Macquarie University v Macquarie University Union Ltd [No 2] [2007] FCA 844

Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [No 2] [2009] WASCA 183

Re Biposo Pty Ltd; Condon v Rogers (1995) 120 FLR 399

Re George A Bond and Co Pty Ltd (1932) 32 SR (NSW) 301

Riviana (Aust) Pty Ltd v Laospac Trading Pty Ltd (1986) 10 ACLR 865

Roumanus v Orchard Holdings (NSW) Pty Ltd [2007] NSWSC 1480

Zempilas v JN Taylor Holdings Ltd (No 2) (1990) 55 SASR 103

1 SIMMONDS J: (This judgment was delivered at the hearing and is edited from the transcript).

2 This is an application by interlocutory process under Corporations Act 2001 (Cth) (Corporations Act) s 472(2) for the appointment of a provisional liquidator made following an application for winding up in insolvency in which, as I understand it, there is to be reliance on s 459Q, noncompliance with a statutory demand, and on winding up under the just and equitable ground under s 461(1)(k).

3 The application for the appointment of a provisional liquidator is made unusual by the fact that it is against the background of a members' voluntary winding up under Corporations Act s 491 under which a liquidator was appointed pursuant to s 495.

4 In addition, the appointment is sought against further background in the form of the making of freezing orders against the two directors and shareholders of the defendant company. Those orders prohibited them from: taking steps to enforce payment of certain amounts owing to them by the company; replacing the company as trustee of any trust; dealing with or diminishing the value of three items of real estate assets of the company; and, dealing with money in the trust account of the company's solicitors.

5 In addition, those two directors were to file an affidavit as to certain matters to do with their company and its dealings with them, an affidavit which has been filed.

6 It is not in contest that the appointment of a provisional liquidator may be made in respect of a company in members' voluntary liquidation, and I refer for this purpose to Deputy Commissioner of Taxation v Tull Reinforcing Pty Ltd [2006] FCA 810; (2006) 153 FCR 394 a case of winding up in insolvency where the company was in creditors' voluntary winding up, at least where such a winding up in insolvency by the court was sought.

7 The background to the application in greater detail I should now draw from the material before the court, and I refer to that material as follows. There are affidavits in support of the application for appointment of a provisional liquidator, of Donald Campbell-Smith, who is the executor of the estate of Martin Paul Banning, sworn 8 January 2010 and 19 January 2010; of David Lenhoff sworn 8 January and 11 January 2010, Mr Lenhoff being a partner in the firm representing the first and second plaintiffs; and of Mr Stewart Vivyan Forbes sworn 20 January 2010. Mr Forbes is a creditor of the defendant company. There is a reference I will need to make to a further affidavit from Mr Forbes later.

8 There is also in opposition to the application, affidavits of Mr Glenn Douglas Trinick sworn on 13 and 19 January 2010. Mr Trinick is the liquidator who was appointed in the members' voluntary winding up of the defendant.

9 From that material the following emerges which I take to be common ground.

10 On 9 July 2008 following an action for damages by the present defendant against the present plaintiffs, I ordered that the plaintiffs pay the defendants the judgment sum there described, and on 6 May 2009 I made costs orders, including special costs orders, in relation to those proceedings.

11 In or about June 2009 the defendant company was paid $1,165,661.54 as the judgment sum. No question of completion of the taxation of costs has yet arisen. An appeal against the judgment for the reasons reported as Professional Services of Australia Pty Ltd v Computer Accounting and Tax Pty Ltd [No 2] [2009] WASCA 183 resulted in the making of orders reducing the judgment sum substantially.

12 The orders on appeal require to be quoted, and I do, taking them from the Lenhoff affidavit of 8 January 2010, pages 22 - 23.

The appeal be allowed.
Paragraph 1 of the order of Simmonds J made on 10 July 2008 be set aside.
In lieu of the order referred to in paragraph 2, it is ordered that:
1. The defendants do forthwith pay to the plaintiff:

1.1 the sum of $280,625.00 together with the sum of $87,370.48 being interest at the rate of 6 per cent per annum from 1 May 2003 to 9 July 2008, and thereafter $60.49 per day from 9 July 2008 to the date of payment.

1.2 the sum of $4,999.50 together with the sum of $1,444.24 being interest thereon at the rate of 6 per cent per annum from 15 September 2003 to 9 July 2008, and thereafter $1.06 per day from 9 July 2008 to the date of payment.

The respondent do pay to the appellants the sum of $716,188.45 plus interest at 6 per centum per annum from 2 June 2009 until 23 October 2009 in the sum of $16,835.33 plus further interest at 6 per centum per annum from 23 October 2009 being $117.73 per day to the date of payment.
The respondent do pay to the appellants the sum of $59,634.27 plus interest at 6 per centum per annum from 5 June 2009 until 23 October 2009 in the sum of $1,372.41 plus further interest at 6 per centum per annum from 23 October 2009 being $9.80 per day to the date of payment.
The respondent do pay to the appellants 80% of their taxed costs of the appeal, save that in respect of the appellants' costs of the issues relating to the orders to be made upon publication of the court's reasons, the respondent do pay the entirety of the appellants' costs to be taxed on an indemnity basis, in that the appellants are to be awarded all costs reasonably incurred which are reasonable in amount.
The amount of $38,000.00 paid into court by the appellants on 10 December 2008 as security for the respondent's costs of the appeal be paid out of court to the appellants' solicitors forthwith.
The costs orders made on 6 May 2009 by the trial judge be set aside and the question of the costs of the trial be remitted to the trial judge for reconsideration in light of the reasons of this court.
Liberty to apply within 14 days in relation to whether there should be a stay of any of orders 4, 5 and 7.

13 I note that no stay of those orders has been applied for and an application for special leave to appeal the decision of the Court of Appeal has been made to the High Court of Australia.

14 On 12 December 2009 a resolution for a members' voluntary winding up and appointment of a liquidator was passed, replacing an earlier resolution to those effects. The validity of the resolutions of 12 December 2009 as effective to commence a members' voluntary winding up was not in contest before me.

15 Mr Trinick, as the liquidator, has since his appointment undertaken a number of tasks, including investigating aspects of the affairs of the defendant company.

16 On 16 December 2009 I made freezing and ancillary orders against Mr and Mrs Frigger for reasons given in remarks delivered earlier in Computer Accounting and Tax Pty Ltd v Professional Services of Australia Pty Ltd [No 3] [2010] WASC 2. Orders were made in the following terms, orders to have effect until 22 January 2010 where there is to be a further hearing in respect of the orders. The principal orders are those in [7] - [12], which I need to set out, taken from the affidavit of Mr Campbell-Smith of 8 January 2010 between pages 54 - 56.

(a) Angela Cecilia Theresa Frigger and Hartmut Frigger (Mr & Mrs Frigger) shall file an affidavit deposing to:-

(i) all assets of whatever nature the Plaintiff owns or holds whether within or outside Australia, and, where the Plaintiff holds the same in trust for any person or persons and if so for whom, to separately identify the assets which are held for each trust;

(ii) all liabilities the Plaintiff owes to any person and the amount of those liabilities at the date of swearing the affidavit, and, including the details of any mortgages, charges or other encumbrances to which any assets are subject);

(iii) in particular, what has become of the money paid to the Plaintiff in satisfaction of the judgment in CIV 2265 of 2006; and

(iv) provide copies of the most recent financial statements of the Plaintiff showing the details of any loan accounts owing to Mr & Mrs Frigger.

(b) Mr & Mrs Frigger shall file an affidavit deposing to:-

(i) the consideration given by them to the present date in support of any loan account claimed to be owing to them by the Plaintiff; and

(ii) what has become of any amounts paid to them by the Plaintiff in diminution of any such loan account since 10 September 2009.

Mr & Mrs Frigger must not take any steps to enforce the payment to them of any amount claimed to be owing to them by the Plaintiff pursuant to a Deed of Charge dated 10 September 2009 or otherwise.
Mr & Mrs Frigger must not take any steps to replace the Plaintiff as trustee of any trust in which the Plaintiff is presently the trustee.
Mr & Mrs Frigger must not take any steps to deal with or diminish the value of any of the following assets:-

(a) the properties known as 140 Edward Street and 46 Pier Street in Perth, and, 296 South Western Highway, Armadale in the State of Western Australia, or, if any have been sold, the net proceeds of the sale;

(b) any money in the trust account of any solicitor acting for the Plaintiff, but, in particular Chris Stokes & Associates; but

(c) nothing in Order 10(b) hereof shall be taken to prevent the use of the money therein referred to to pay the reasonable legal expenses of the Plaintiff.

The Plaintiff and the First and Second Defendants may agree in writing to variation of this Order. In that case the Plaintiff and the First and Second Defendants must as soon as practicable file with the Court and serve on the other a minute of a proposed consent order recording the variation signed by or on behalf of the Plaintiff and the First and Second Defendants, and, the Court may order that this Order be varied accordingly.
This order will cease to have effect if the Plaintiff:-

(a) pays the sum of $850,000 into Court; or

(b) pays that sum into a joint bank account in the name of the Plaintiff's solicitor and the solicitor for the First and Second Defendants as agreed in writing between them; or

(c) provides security in that sum by a method agreed in writing with the First and Second Defendants to be held subject to the order of the Court.

(d) Any such payment and any such security will not provide the First and Second Defendants with any priority over the Plaintiff's other creditors in the event of its insolvency.

17 On 8 January 2010 the application for winding up in insolvency and the present application for appointment of a provisional liquidator were made. These followed the service at the then registered office of Computer Accounting and Tax, the defendant company, of two statutory demands, one for a debt of $18,247.59 said to be owing to Mr Forbes on 1 December 2009, and one for the sum of $800,917.08 said to be owing to the first plaintiff on 16 December 2009.

18 The Forbes debt was stated to be for taxed party and party costs, plus interest, in CIV 1216 of 2009. The first plaintiff's debt was stated to be for the sum of the two amounts in [4] and [5] of the orders of the Court of Appeal which I have previously set out.

19 It was common ground that there has been a failure of compliance within 21 days of service: see Corporations Act s 459F. The company had not within that period made application to set either statutory demand aside: see s 459G.

20 With that background, I turn then to the applicable law. The parties do not contest the general principles to guide the exercise of the power to appoint a provisional liquidator as sufficiently stated, at least at the general level for my purposes, in Roumanus v Orchard Holdings (NSW) Pty Ltd [2007] NSWSC 1480 [8] - [11], (Austin J), and I would set out those paragraphs.

As a general proposition, the plaintiff must establish an urgent need for intervention, or some other good reason to take control away from the directors (Re JWD Pty Ltd (1990) 5 WAR 31; Re Capital Services Ltd (1983) 1 ACLC 1270; Re Gasbourne Pty Ltd [1984] VicRp 70; (1984) 2 ACLC 103). However, the 'good reason' must be established having regard to the urgent circumstances of the application. The urgency of the application almost inevitably means that the court will have before it substantially less evidence than will be adduced at the final hearing of the winding up application (Constantinidis v JGL Trading Pty Ltd (1995) 17 ACSR 625, 635). Frequently, as in the present case, the hearing of the application takes place without oral evidence, and therefore without the court having any opportunity to assess the credibility of witnesses. In those circumstances the court deals with questions of fact only to the interlocutory standard, determining whether the plaintiff has established a serious question to be tried as to the grounds for winding up (Boral Resources (WA) Ltd v Innovative Precast Systems Pty Ltd, Supreme Court of Western Australia (Sanderson M), 24 August 1998, BC 9804409 at 15). As in the case of an application for any other interlocutory order, much attention must be given to the question of balance of convenience, including the need for urgent intervention.

Generally, the purpose for which a provisional liquidator is appointed is to preserve the assets of the company and the status quo in relation to its affairs (Zempilas v JN Taylor Holdings Ltd (No 2) (1990) 55 SASR 103; 3 ACSR 518 per King CJ). However, an order for the appointment of a provisional liquidator is different from some other kinds of interlocutory orders in that the order unavoidably disturbs the status quo to a degree, if at the time the application the company is carrying on business in a commercial environment. The very appointment of a provisional liquidator can have a drastic effect on the company's business, perhaps even leading to its commercial death (see the discussion by Kirby P in the Constantinidis case, at 635ff, and also Commonwealth v Hendon Industrial Park Pty Ltd [1995] FCA 1291; (1995) 17 ACSR 358). This leads to the observation that 'the appointment of a provisional liquidator pending adjudication upon the petition for winding up, is a drastic intrusion into the affairs of the company and is not to be contemplated if other measures would be adequate to preserve the status quo' (Zempilas per King CJ, approved by Kirby P in Constantinidis at 635).

While the ultimate fate of the application for winding up must be left to the court finally hearing the matter, a provisional liquidator will not usually be appointed unless it appears in the material before the court that a winding up order is likely; that is, there should be adequate evidence adduced to show that winding up is likely in the absence of material to the contrary (Re McLennan Holdings Pty Ltd (1983) 7 ACLR 739, approved by Kirby P in Constantinidis at 636). Although the court's assessment of the evidence can only reach the interlocutory standard, there must be some assessment made of the overall strength of the case as a foundation for the ground of winding up that is invoked (Allstate Explorations NL v Batepro Australia Pty Ltd [2004] NSWSC 261).

The court can and sometimes does appoint a provisional liquidator where the ground for winding up is oppression or the just and equitable ground. But it is appropriate to bear in mind, where the applicant relies on the oppression ground, that under Part 2F.1 of the Corporations Act the court has the power to make a variety of orders and winding up is only to be ordered as a last resort (Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [1998] NSWSC 413 per Young J). Where an application for winding up is made on the just and equitable ground, the court is required by s 467(4) to consider whether some other remedy is available and whether the plaintiffs are acting unreasonably in seeking to have the company wound up instead of pursuing the other remedy. Similar considerations apply, as a matter of exercise of the court's discretion, where the ground is oppression (Re Quest Exploration Pty Ltd (1992) 6 ACSR 659). Other interim regimes can be devised that may protect the status quo (Triulco v Chase Property Investments Pty Ltd [2003] NSWSC 861; Labraga v Pomfret [2005] NSWSC 490).

21 I note that I have evidence on affidavit from Mr Donald Campbell-Smith in his capacity as the executor of the estate of Martin Paul Banning and from the liquidator for the defendant, and that the liquidator for the defendant and Mrs Frigger were both present in court during the hearings on the present application.

22 However, it was common ground that I should deal with the questions of fact on the basis of the affidavit material to the interlocutory standard as referred to in Roumanus.

23 I turn then to the application of the principles and I begin by considering whether it appears from the material before me that a winding up order is likely, judging the material to the interlocutory standard but with some assessment of the strength of the case as the foundation for the ground of winding up invoked.

24 I consider by way of statement of my overall conclusion before explaining the reasons for it that the material meets the standard with such an assessment for winding up in insolvency. While the matter is less clear as to winding up on the just and equitable ground, I have arrived at the same conclusion with respect to winding up on that ground.

25 I turn then to my reasons for so concluding. As to winding up for insolvency, I have noted the declaration of solvency of the Friggers dated 12 December 2009 that preceded the members' voluntary winding up resolutions as well as the affidavit of Mrs Frigger sworn 20 January 2010 expressed as pursuant to order 7 of the freezing and ancillary orders which I have previously set out.

26 These two sources are not altogether consistent with one another and, in particular, the assets and liabilities are higher, the former by a greater amount than the latter, so as to produce a greater apparent surplus in the later document compared with the earlier, the difference between $1,298,058.96 and $1,232,295.95 of about $66,000 compared with the difference between $1,201,816 and $1,197,278 of about $4,500.

27 However, both documents appear to indicate that the largest component of the assets of the defendant company is the cost of the proceedings in CIV 2265 of 2006 with a solicitor's estimate of $648,710 provided to me in the affidavit material, it being common ground that that amount, or something like it, is part of the item 'Litigation' in the declaration of solvency.

28 However, of course, as will be evident from the orders following the appeal in CIV 2265 of 2006, the order for costs has been set aside. However, subject to the making of a new costs order, it cannot be contested that there will be a substantial reduction in such costs after final assessment.

29 That assessment is some distance away, however. Further, there is evidence from Mr Forbes, a solicitor retained by the plaintiffs in relation to the taxation of costs in CIV 2265 of 2006, in a separate affidavit that the assessment relied on by the defendant is at least twice the amount he would estimate.

30 Also, both the declaration of solvency and Mrs Frigger's affidavit indicate that the largest component of the liabilities of the defendant company is the judgment sums, the subject of the second statutory demand to which I have referred, being the amount that follows from the orders the Court of Appeal set out earlier and also being amounts due and payable presently.

31 It is evident to me then that the company's assets available to it presently are insufficient to pay the judgment sums currently due and payable. Without more, in my view, I consider I have a strong case judged, however, on the interlocutory standard that the defendant company is insolvent: see Corporations Act s 95A.

32 I further have evidence that there are other liabilities of the defendant company beyond those shown in the declaration or the affidavit. These are fees and expenses of the receiver of the principal asset of Martin Paul Banning which, by orders I had made earlier appointing that receiver, are made payable by the defendant company initially at least.

33 There are also costs of a number of applications before me in which the first and second plaintiffs were successful in which costs were awarded to them or such costs orders are likely to be made.

34 However, I only have evidence as to liabilities presently due in respect of the judgment sums and the Forbes' liability. In respect of the liability of $385,000 stated both in the declaration and in the affidavit to be due to the Friggers and secured by a charge, I have evidence that the Friggers have undertaken not to enforce the charge to the extent that the liabilities of the defendant company exceed its assets which is in addition to the terms of the freezing order preventing enforcement of the charge. However, this evidence does not address any question of the enforcement of that liability as an unsecured debt claim.

35 In respect of the judgment sum and indeed the costs orders set aside, I must, of course, note the application for special leave that has been made to the High Court. However, the resolution of that application, let alone any resultant appeal, is some time distant. I do not have any evidence before me from a solicitor or other legal expert of any assessment of the prospects for that appeal. In those circumstances, I do not consider I should give any significant weight to the application for special leave.

36 I also have noted the statutory demands. In respect of the statutory demands, counsel for the respondent indicated that in any winding up application objection would be taken to the form of one with the mismatch in address details and service of the other, being service on the company's then registered office rather than on the office of the liquidator. Authorities were cited to me in relation to those matters by both counsel.

37 I do not consider in proceedings such as these that I am in a position to resolve the issues of the effectiveness of the statutory demands. I note in particular that the arguments are hardly straightforward in relation to either. The courts, generally speaking, do not respond favourably to arguments that deficiencies in the statutory demand of a relatively minor character should result in a set aside, and there is a question as to service of how to construe s 109X of the Corporations Act which, on its face, appears to be facultative and not restrictive as to service methods. However, in any event, I do not need to consider, in my view, those matters in view of my earlier conclusions as to insolvency.

38 However, the matter of insolvency simply enlivens the discretion of the court to make a winding up order in insolvency and indeed, to put the matter around the other way, the court retains even in the face of proof of insolvency a discretion not to make such a winding up order. Tull itself illustrates this.

39 My task, as Roumanus indicates, is to determine to the interlocutory standard if a winding up order is likely. In Tull the company was in a creditors' voluntary winding up, as I have noted, and the court said what it did at [17] - [18] of the judgment which I would set out.

A court will not make an order winding up a company in insolvency in circumstances in which the company is already the subject of creditors' voluntary winding up unless there is good reason to do so: Carter (as liq of New Tel Ltd (in liq)) v New Tel Ltd (in liq) [2003] NSWSC 128; (2003) 44 ACSR 661 per Austin J at 663(5); Re Green (as liq of Australian Resources Ltd (in liq)) (supra) per Barrett J at 453 [5]. The reason for this is that, in the ordinary case, there is little practical difference between a creditors' voluntary winding up and a form of winding up imposed by order of the court.

In the authorities, various reasons for making an order in such circumstances have been put forward and held to be sufficient. One reason which has commonly been put forward is that a change of liquidator is desirable. That reason will be sufficient if the liquidator has not given the appearance of being independent: Citrix Systems Inc v Telesystems Learning Pty Ltd (in liq) (supra) per Moore J at 535-537, but, on the other hand, a mere desire to replace a liquidator is not sufficient: Re Green (as liq of Australian Resources Ltd (in liq)) (supra). The fact that an insurance policy responding to claims for insolvent trading by directors may cover such claims only if the liquidator is appointed by the court may be a sufficient reason: Re Green (as liq of Australian Resources Ltd (in liq)) (supra), as may the fact that a charge or certain dispositions of property may only be challenged if the court has ordered the company to be wound up under s 459A: Carter (as liq of New Tel Ltd (in liq)) v New Tel Ltd (in liq) (supra).

40 However, it was not suggested to me that it was not likely in this case that, if insolvency were made out, a winding up order might yet not be made in the exercise of the court's discretion.

41 In my view, that is the correct position. I note that if a company is insolvent, a compelling reason should be shown for the court to exercise its discretion not to wind up: see Khoury v Rosemist Holdings Pty Ltd [1999] FCA 458 [65] (Boon JR). A members' voluntary winding up would not be such a reason, in my view, as it cannot be denied there are significant practical differences between a members' voluntary winding up and a winding up by the court in insolvency. These differences go principally in a case like this to the right of participation of creditors and a meeting of them in the winding up in insolvency that has no counterpart in a members' voluntary winding up: see Corporations Act s 479.

42 As to winding up on the just and equitable ground, the general principles relevant to an application in this case that the plaintiffs referred me to were from Macquarie University v Macquarie University Union Ltd [No 2] [2007] FCA 844 particularly at [40] in the judgment of Lindgren J, and I would set that paragraph out.

It is appropriate for the Court to exercise its discretion to wind up a company on the just and equitable ground in circumstances where there is 'a lack of probity in the conduct of the company's affairs, productive of a justifiable lack of confidence in the administration of the company': Macquarie Bank Ltd v TM Investments Pty Ltd [2005] NSWSC 608; (2005) 223 ALR 148 at [11]; see also Deputy Commissioner of Taxation v Casualife Furniture International Pty Ltd [2004] VSC 157; (2004) 9 VR 549 at [452]. A justifiable lack of confidence may be shown where directors of a company cause the company to enter into highly irregular and potentially dishonest transactions (Macquarie Bank Ltd v TM Investments Pty Ltd, above, at [16]) or where the history of the conduct of the company indicates a failure to abide by its obligations and by commercial morality in the conduct of the business (Deputy Commissioner of Taxation v Casualife Furniture International Pty Ltd, above, at [504]). An order may be made where a company has not carried on its business candidly and in a straightforward manner with the public or in circumstances where, as here, the company has improperly divested itself of assets in breach of directors' obligations under the Act (Australian Securities and Investments Commission v International Unity Insurance Pty Ltd [2004] FCA 1059; (2004) 22 ACLC 1416, per Lander J at [135]-[139] and cases there cited).

43 I did not understand counsel for the defendant to take issue with that statement as relevant to this case but only to take issue with its application judged to the interlocutory standard to produce the conclusion for which the plaintiffs contended.

44 In this case I consider there is evidence which shows to the interlocutory standard that there are circumstances arousing strong suspicion that assets of the defendant company have been paid out to the Friggers where the claimed basis for payment is called into serious question by other evidence and where the claims of the company are being treated as claims at least of Mrs Frigger.

45 Those matters, I should immediately add, may be susceptible of explanation which would indicate transactions there referred to were not highly irregular or potentially dishonest and did not represent improper divestiture of corporate assets in breach of the directors' obligations.

46 However, the evidence is sufficiently strong to suggest to me a need for an explanation and furthermore, in my view, if no explanation is forthcoming, a winding up on the just and equitable ground appears to me to be likely.

47 There is or there was a further matter to do with non-concessional in specie contributions or cash contributions made to the Frigger Superannuation Fund by the defendant company which counsel for the plaintiffs said were above the limits allowed by taxation authorities and might lead to penalties with implications for the defendant company adverse to its interests.

48 These matters, it was said, also tended to show conduct by the directors of the defendant company that fell within Macquarie University [40]. However, I did not have evidence or other references before me as to the limits in question so as to enable me to assess this submission and I must therefore put it to one side, and I do.

49 I turn then to the relevant evidence. This includes evidence from Mr Trinick, as per his affidavit sworn 19 January 2010 [19.1], that he was told by Mrs Frigger that the judgment sum that was received in the middle of 2009, plus a sum of $999,999 that the company previously had on a term deposit with ING Direct Bank, had been used to pay 'the company's normal operating expenses, legal expenses and non-concessional superannuation expenses in lieu of salary' for the directors of the company.

50 My attention was also directed to the lack of detailed accounting to explain the amounts thus described which Mr Trinick acknowledged was the situation he faced at the time of his most recent affidavit.

51 There was also evidence from the company's tax return for the tax year 2007 - 2008 showing total expenses for that year of $765,362 which, when read with the statement Mr Trinick indicated Mrs Frigger made to him at the time of the transfer of real estate assets of the company to the Friggers as non-concessional in specie contributions to the Frigger Superannuation Fund, indicate the directors were slowly winding down the business of the company and preparing for retirement.

52 That material, in my view, calls into serious question the propriety of a payment of about $2 million of assets of the company, as the purposes indicated are not easily squared with the history of expenses of the company, the business of which is most recently being wound down and was seen to be in that process for some time.

53 At the same time, not all the purposes assigned for payment relate to normal expenses and the explanation of the payments consistent with their propriety may lie in those other purposes.

54 I have also noted evidence that in relation to a claim by invoice dated 26 September 2009, although apparently sent under cover of a letter dated 15 September 2009 from the defendant company for payment from one of its clients, there was a direction to pay this claim to Mrs Frigger at a bank account for her. There was also a minor case claim in the Magistrates Court lodged 24 September 2009 and an invoice dated 15 September 2009 sent under cover of a letter dated 30 November 2009, both apparently in respect of the same claim by the defendant but both showing the claimant as Mrs Frigger.

55 I consider this as evidence which, if left unexplained would, when added to the evidence of the payments previously described, produce the suspicion I have previously referred to.

56 On balance, I consider then, judging the matter I stress at the interlocutory standard, that it has been shown there are grounds for winding up on the just and equitable grounds that have been made out. Further, judging on the same basis, I consider winding up on such ground has been shown to be likely.

57 It is important to recognise, however, that the court would have to consider, in considering winding up on the just and equitable ground after a ground has been made out, whether the other remedies are available and that the plaintiff is acting unreasonably in seeking to have the company wound up: see Roumanus [11].

58 However, it is the case here, of course, that the members themselves are seeking a winding up, and it seems to me that in that context the court would not conclude against the making of a winding up order on the just and equitable ground.

59 However, I should add that I assess the cases for the ground for winding up on the just and equitable ground on the material before me not to be as strong as that from winding up in insolvency. At the same time I consider it is sufficiently made out, and I should also add that the matters involved in that case also have significance for issues I reach next going to balance of convenience.

60 All of the matters I have described, in my view, establish the serious question to be tried to which Roumanus refers.

61 Attention must now be directed to the balance of convenience issues, including the need for urgent intervention through the means of a provisional liquidator. This directs my attention to whether other measures would be adequate to preserve the status quo: see Zempilas v JN Taylor Holdings Ltd (No 2) (1990) 55 SASR 103 at 107 in the judgment of King CJ frequently referred to in this context.

62 I consider that the status quo in this case, involving a company in a members' voluntary winding up where investigations of aspects of its affairs are underway, includes matters of ensuring proper investigation of issues of concern to which I have referred, issues of concern which may lead to possible disgorgement of assets that require to be attended to before those assets are dissipated.

63 Here, the defendant laid emphasis on what it said was no or insufficient evidence of jeopardy to the assets of the defendant company which would call for intervention through the appointment of a provisional liquidator.

64 I note that jeopardy to assets is on the authorities a relevant consideration. However, it is not always required, as where, as here, the company is represented at the hearing and suspicious circumstances are disclosed by the evidence: see Riviana (Aust) Pty Ltd v Laospac Trading Pty Ltd (1986) 10 ACLR 865, 866 (Young J), an authority that appears to be frequently referred to.

65 In this case, on the material before me and as I have indicated, an investigation of transactions involving substantial assets of the company is called for. Indeed, the evidence from Mr Trinick is that he is conducting relevant investigations in that regard and the possibility of disgorgement of assets is one to which I previously referred.

66 However, counsel for the defendant company also directs my attention to those investigations being undertaken by Mr Trinick and to the protections of the assets of the defendant company from claims on them that might otherwise be made by its directors that are provided for under the freezing and ancillary orders. Those investigations and those protections, counsel for the defendant says, meet the considerations I have just described which might otherwise call for appointment of a provisional liquidator.

67 However, in my view, those arrangements have not been shown to be adequate to preserve the status quo for the reasons that follow. As to Mr Trinick's investigations, the plaintiffs do not claim either that he has failed up to now to conduct proper investigations or that he personally is unfit to conduct them.

68 However, my attention is drawn to an arrangement by which Mrs Frigger or the Friggers are responsible for the expenses of the winding up. This should be seen in the context of arrangements for Mr Trinick's practice, which is that of a sole proprietor with an arrangement with a firm whose practice resources and administrative and support staff he is able to use 'for a fee'.

69 I accept that this may be expected to create difficulties for Mr Trinick if in pursuit of his inquiries, which necessarily will involve the affairs of the Friggers, issues with respect to payment of the expenses of the winding up were to arise.

70 I should stress immediately that no such issues have yet arisen. However, circumstances I have described raise serious questions as to the adequacy of the arrangements presently in place in relation to the investigations which appear to be necessary.

71 I note in this regard the reference to matters likely to impede or inhibit a liquidator in the performance of his functions referred to in Citrix Systems Inc v Telesystems Learning Pty Ltd (in liq) (1998) 28 ACSR 529, 536 - 537 (Law J), quoting from Advance Housing Pty Ltd (in liq) v Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230, 234 (Santow J).

72 There is, however, a further matter, that of the role of the creditors in relation to such investigations or the other work of the liquidator in a members' voluntary winding up. There is no scope, before the liquidator has arrived at an opinion that the company will not be able to pay or provide for the payment of its debts within the period stated in the declaration of insolvency (see Corporations Act s 496), for the creditors to take action to have investigations or other work of the liquidator redirected. Compare for the provisional liquidator s 472(6), and contrast s 538(1)(b) concerning complaints in connection with the performance of duties.

73 Mr Trinick has not yet been able to arrive at the opinion referred to. That matter of the lack of the role of the creditor referred to seems to me to be a significant consideration given the strength of the case for the likelihood of winding up in insolvency as I have assessed it.

74 As to the freezing and ancillary orders, I must note first their time-limited character. I must further note that they do not provide for arrangements for the conduct of the affairs of the company, including investigation of them, in which the creditors would have a role in the Corporations Act s 472(6) of a kind that appointment of a provisional liquidator would entail.

75 Of course, the two creditors, parties to the freezing order applications, have the capacity to apply for variation of the orders which is, it might be suggested, a similar facility; but it seems to me that the facility is not of the same kind as that described in s 472(6).

76 I consider I should measure the adequacy of the arrangements represented by the members' voluntary winding up and freezing and ancillary orders separately and in combination against the standard represented by the arrangements of the conduct of the affairs of the company where a provisional liquidator is appointed that I have just described.

77 By that measure I do not consider that a members' voluntary winding up and the freezing and ancillary orders separately or considered together to be adequate to preserve the status quo as I have described it.

78 It follows then I would make orders for the appointment of a provisional liquidator. Orders for the powers of the provisional liquidator to be appointed and of the person to be appointed which are sought in the plaintiff's interlocutory process do not appear to me to be inappropriate with an exception which I must separately consider.

79 However, no attention was directed at the hearings before me to the terms of those orders with that exception and, accordingly, I will hear from the parties as to those orders. The exception is for the person to be appointed as the provisional liquidator and I turn to that now.

80 As to the person to be appointed as provisional liquidator, the plaintiffs submitted that the court should appoint as provisional liquidator a person other than the present liquidator Mr Trinick. The plaintiffs do not claim he is unqualified to be a provisional liquidator or unfit to hold office. As I have indicated, he has embarked on investigations which appear to me to be of a kind a provisional liquidator would be expected to continue.

81 Further, the matter of the expenses of the provisional liquidator would not be dependent on arrangements with a third party. As provisional liquidator, Mr Trinick, were he to be appointed to that position, would be entitled to be paid his remuneration and expenses out of the assets under his administration: see Keay A, 'An Exposition of the Principles of Provisional Liquidation' (1998) 6 Insolvency Law Journal 19, 33.

82 However, the plaintiffs say, there are two matters of particular significance to me. One is that the resources of Mr Trinick are limited and are less than those of the person they have put forward to be appointed as provisional liquidator, Mr Mervyn Jonathan Kitay of WHK Horwath. The significance of the resources available to the provisional liquidator lies particularly in the investigations he must perform.

83 There is a second matter as well. That is the matter that the creditors with the largest claim by value of all the claims on the plaintiffs have indicated they would object to Mr Trinick being provisional liquidator and prefer Mr Kitay.

84 In considering the appointment of a provisional liquidator as a person other than a liquidator already in place, it was not in contest that I should approach the matter by reference to the principles used in the authorities on removal of a liquidator for cause under s 503 of the Corporations Act. It is common ground that those principles so far as they are of relevance to this case are to be found in Domino Hire Pty Ltd v Pioneer Park Pty Ltd [2003] NSWSC 496 [58] (Austin J), and I set that paragraph out.

The words 'cause shown' indicate that a liquidator is not to be removed unless there is some ground for removal, and the ground must be established by evidence. However, 'cause shown' is not a narrow concept. It is open to the applicant for removal to point to any conduct or inactivity on the liquidator's part that provides a basis for the conclusion that he or she should be removed, ranging from moral turpitude, to bias or partiality, lack of independence, incompetence or other unfitness for office. But the concept of 'cause shown' is not limited to matters relating to the unfitness of the liquidator to hold office. In Re Adam Eyton Ltd; ex parte Charlesworth (1887) 36 Ch D 299, speaking of a statutory formulation where the words used were 'due cause shown' rather than 'cause shown', Bowen LJ said (at 306):

'In many cases ... unfitness of the liquidator will be the general form which the cause will take upon which the Court in this class of case acts, but that is not the definition of due cause shown. In order to define "due cause shown" you must look wider afield, and see what is the purpose for which the liquidator is appointed. ... "due cause" is to be measured by reference to the real, substantial, honest interests of the liquidation, and to the purpose for which the liquidator is appointed. Of course, fair play to the liquidator himself is not to be left out of sight, but the measure of due cause is the substantial and real interest of the liquidation'.

85 I must therefore consider matters raised by the plaintiffs by reference to the real, substantial and honest interests of the liquidation.

86 I turn then to the first of the matters, Mr Kitay relative to Mr Trinick. Mr Kitay, so far as emerges from his consent to act as provisional liquidator, appears to be a member of a firm, the WKH Horwath firm, which appears to include accountants at several levels and support staff, including managers. However, I have no more information than that.

87 For Mr Trinick I have noted the resources of Insolve DCS of which I have evidence that they are, apart from Mr Trinick, a solicitor, two liquidators, two trustees in bankruptcy, two accountants, two para-professional staff and four support staff. On that material, necessarily very limited, I do not consider a resource differential of significance to me has been made out.

88 As to the creditors' preference, it is not in contest that the plaintiffs whose claim is for the judgment sum, and Mr Forbes, whose claim I have referred to already, object to Mr Trinick and prefer Mr Kitay. I have no evidence of similar preferences from the other claimants, although I would take it the Friggers, who have the most substantial other claim for $385,000, would not prefer Mr Kitay. However, as it is their conduct that needs to be investigated, I do not consider that any weight of significance should be given to their preference.

89 The preference of the plaintiffs and Mr Forbes continues, as I understand it, notwithstanding the most recent affidavit of Mr Trinick which describes his qualification as an official liquidator, the resources available to him and his investigations to date.

90 It is clear that the wishes of the creditors representing a large majority of claims by value are matters to which I should have regard although they are not necessarily determinative: see Corporations Act s 547(2) and Re George A Bond and Co Pty Ltd (1932) 32 SR (NSW) 301, a case that continues to be frequently cited today.

91 The position of creditors seems to me in this case to be of particular significance where, as I have stressed, considerations of the role of the creditors, that is to say, independent of the ones who are to be the subject of investigations, have played a significant part in my determination to make a provisional liquidator appointment order.

92 However, the appointment of a provisional liquidator is finally a matter for the court. It is not determined by a decision of the creditors.

93 As I have indicated, from the most recent affidavit of Mr Trinick, he has already embarked on investigations. While the administration of the defendant company has not advanced far, it seems to me that there could be considerations tending against the replacement of Mr Trinick if it were shown that work he has done might be wasted or its continuation by someone else made more expensive if a replacement were indeed appointed: see Re Biposo Pty Ltd; Condon v Rogers (1995) 120 FLR 399, 403, a New South Wales Supreme Court judgment of Young J.

94 However, I consider I do not have evidence of such cost implications of his replacement; nor is it evident to me from the nature of the actions taken by Mr Trinick, considered with the time that has elapsed since his appointment, that I should infer such a cost differential, if any, would be significant. I note for this purpose Biposo (403) where a somewhat similar period was noted, apparently for the same kind of purpose, although ultimately the court considered that the liquidator should be removed on considerations not relevant to this case.

95 Weighing all the matters referred to, I would appoint Mr Kitay as provisional liquidator. I should add that in doing so, the effect would be, as I have indicated at a number of points earlier, to replace Mr Trinick. No criticism of any sort is made by any party or by the court of the conduct of Mr Trinick.

96 Consistently with the approach to replacement under s 503, if Mr Trinick wished to resign his position as liquidator in a members' voluntary liquidation prior to the taking out of final orders in this case, opportunity should be allowed of a reasonably short character to him to do so.

PROFESSIONAL SERVICES OF AUSTRALIA PTY LTD -v- COMPUTER ACCOUNTING AND TAX PTY LTD [2010] WASC 38 (21 January 2010)

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PROFESSIONAL SERVICES OF AUSTRALIA PTY LTD -v- COMPUTER ACCOUNTING AND TAX PTY LTD [2010] WASC 38 (21 January 2010)

Cases Cited (6)