Re Avonwood Homes Pty Ltd [2000] VSC 216 | Case summary

Supreme Court of Victoria|2000-05-05|Before: Mandie J

CORPORATIONS - application for appointment of receiver and manager - position where companies insolvent - s. 37(1) Supreme Court Act 1986.

This application is brought by three companies by originating process, filed today, for the appointment of a receiver and manager to their assets and undertakings. The three companies are involved in building residential homes, and there are a large number of uncompleted homes and contracts for the construction of homes. There are a very large number of trade creditors and a large number of home buyers involved.

Reliance was placed on s.37(1) of the Supreme Court Act under which the court has power to appoint a receiver and manager where it is just and convenient to do so. The application is also made under s.1323 of the Corporations Law but there has been no reference to that and at the moment I do not see the basis for the application under that section.

It is clear on the material that the companies are insolvent, and it is put that the appointment of a receiver would be the best device to secure the assets of the companies in order that they be sold for the best possible price.

In general, a receiver ought not be appointed once companies are insolvent, and I ask myself what the benefits would be to the companies or to the secured creditor, a bank, or to the unsecured creditors by the appointment of a receiver. Mr Jones who appears for the applicants or the plaintiffs - the companies, says that the perception that would be created by the appointment of a provisional liquidator, or liquidator, would be detrimental to the sale of the assets which are primarily the building contracts, whereas the appointment of a receiver would not have that detrimental effect.

I am not at all persuaded by that submission. It seems to me that, given the evidence of the publicity about these companies, given the statement on affidavit that these companies are insolvent and the knowledge of this in the industry, any party who was interested in buying all of these contracts, (and that is put forward as being the main advantage for the appointment of a receiver) would be well aware of the position of the company and its plight, and the perception that is referred to is, I think, an irrelevant consideration. Whether a receiver be appointed or an administrator or a liquidator, the position, I would have thought, would be no different.

There is also reference to the potential sale of tax losses but that is not supported on the affidavits before the court and I do not understand exactly what these losses are or how they might be sold or to whom they might be sold, and under what provisions the tax losses might be of value, but assuming that there are valuable tax losses, no doubt an insolvency appointee, whether he be an administrator or a liquidator, could likewise avail himself of the tax losses and sell them by way of scheme of arrangement as has often been done, and that might involve taking the companies out of liquidation; but the sale of the tax losses is not the urgent matter. The urgent matter relates to the building contracts.

With regard to that, as I say, I cannot see why a receiver would be any more advantageous than an administrator under the relevant provisions of the Corporations Law, or a liquidator. It seems to me that before the court exercises the power to appoint a receiver, it should be persuaded that there is no reasonable or satisfactory alternative. Parliament has made provision in the Corporations Law primarily for two methods of dealing with insolvent companies. There is the method of administration under Part 5.3A and then there is the method of administration by way of winding-up.

Both of those statutory avenues have built-in protections for the company and for unsecured creditors and their equality of treatment. On the other hand, if a receiver is appointed, many of those protections do not apply. There is no moratorium on action against the companies. In that regard, I notice that in the proposed order that is put before the court it is sought to have the court order that during the time that the receiver and manager is appointed, a proceeding in a court cannot be begun or proceeded with except with the receiver's written consent or with the leave of the court. I am not aware of any statutory provision which permits that course to be taken, nor am I aware of any relevant authority and none has been drawn to my attention. However, if I assume that the court has got power to do it, I am far from persuaded that the court should do it. Without such a provision it seems to me that a receiver would be in a disadvantageous position compared with that which would be attended by the appointment of administrators by the company or by the appointment of a liquidator or provisional liquidator.

It seems to me that the material is not such as to support the conclusion that the statutory avenues which have been made available by Parliament should be disregarded and that the court should step in and use its powers to appoint a receiver when the legislation exists to deal with situations of insolvency. I am not persuaded that it is just and convenient that the orders should be made, and I am not prepared to make those orders.

I am fortified in reaching that conclusion by the failure to put before the court even the scantiest of financial statements in relation to each of the companies, by way of draft balance sheets or some form of tabular summary of their position, but that matter is not determinative. It merely adds strength to my view that it is inappropriate for the court to appoint a receiver when the avenues available under the Corporations Law are there and when there is not, it seems to me, any overriding reason why they should not be availed of.

I do not think that the plaintiffs have really pointed to any significant detriment which would be attended by attraction of the provisions of the Corporations Law relating to insolvency and which would not be attracted by the appointment of a receiver, whereas the receiver would face some hazards which are not faced by a liquidator or administrator.

I add that it is provided in the proposed order which is put before the court that the need for the receiver to obtain a bond be dispensed with. Again it seems to me that that would need to be justified - that the usual order in the case of the appointment of a receiver is for the receiver to provide security. This seems to me to be another reason why the normal procedures under the Corporations Law should be preferred.

Clearly it is a matter for urgent action by the directors, given the statement that all these companies are insolvent, that they should take that urgent action and either appoint administrators or see that processes relating to the winding-up of the company should take place. There may be other alternatives but they have been the ones that have been canvassed in the proceeding.

I will not dismiss the application because it may be that on further material possibly, or in the light of further developments, the parties might want to come back to the court, and it may be that other interested parties, such as A.S.I.C., would want to formally make submissions to the court in order to assist the court in determining what steps should be taken, so I will adjourn the application sine die but I refuse the relief sought today.

[The companies then successfully applied for a provisional liquidator to be appointed.]

Re Avonwood Homes Pty Ltd [2000] VSC 216 (5 May 2000)