Federal Court of Australia|1992-02-20|Before: Spender J, Mr J

Re Natwest Australia Bank Limited v Glen Pacific Pty Ltd (Receiver and Manager Appointed) and Gude Pty Ltd (Receiver and Manager Appointed) [1992] FCA 54; (1992) 6 Ascr 711, (1992) 10 ACLC 455 (20 February 1992)

And: GLEN PACIFIC PTY LTD (Receiver and Manager appointed) and GUDE PTY LTD

Companies - Appointment of provisional liquidator - Application for appointment by creditor of company - application opposed by company - debt disputed - pending action against creditor - whether winding up order likely - Corporations Law ss. 460 and 472.

Clemada Pty Ltd v Hire It Pty Ltd (1990) 3 ACSR 202

In Re Club Mediterranean Pty Ltd (1974-75) 11 SASR 481

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

Rural Industries Co-operative Society Ltd v Porky Pigs Pty Ltd (1988) 12 ACLR 794

Instructed by: Sly and Weigall, Cannan and Peterson

The applicants on the notices of motion to pay the respective respondents' costs, to be taxed if not agreed.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

On 12 February 1992, Natwest Australia Bank Limited ("Natwest") filed an application seeking the winding-up of Glen Pacific Pty Ltd (Receiver and Manager appointed) ("Glen Pacific") and of Gude Pty Ltd (Receiver and Manager appointed) ("Gude"), pursuant to the provisions of Part 5.4 of the Corporations Law. Section 460(1) provides:

" The Court may order the winding up of a company that is

" The Court may appoint an official liquidator provisionally

at any time after the filing of a winding up application and

before the making of a winding up order or, if there is an

appeal against a winding up order, before a decision in the

appeal is made. "

2. Also on 12 February 1992, two notices of motion were filed by Natwest seeking:

1. Graham Lindsay Starkey an official liquidator be appointed the

provisional liquidator of Gude and Glen Pacific;

2. The provisional liquidator to take possession of all of the

property of Gude and Glen Pacific; and

3. The provisional liquidator to have the power to carry on the

business of Glen Pacific and Gude and the powers specified in

section 447(2)(a)-(k) of the Corporations Law.

3. On 12 February Natwest applied pursuant to O. 71 r. 36 of the Federal Court Rules for the nomination of an official liquidator to act as the provisional liquidator of Glen Pacific and of Gude. That same day Graham Lindsay Starkey of Duesburys, chartered accountants in Brisbane, who is an official liquidator registered under s. 1283 of the Corporations Law consented, if appointed by the Court, to act as provisional liquidator of Glen Pacific and of Gude.

4. The orders sought in the notices of motion were opposed by Glen Pacific and Gude.

5. The applications for the appointment of provisional liquidators to Glen Pacific and Gude have to be seen in the context of litigation No. Q G174 of 1991, commenced in the Federal Court by the filing of an application and statement of claim on 10 December 1991, between David Henry Leitch, Alma Margaret Leitch, Gary David Leitch, as the first three applicants, and Gude and Glen Pacific as the fourth and fifth applicants, with Natwest as first respondent, Peter Murray Walker as second respondent and Glandore Pty Ltd (in Liquidation) as third respondent.

6. A directions hearing in that matter is appointed for 24 February 1992 and it is said that this circumstance required urgent consideration of the question of the appointment of a provisional liquidator for Glen Pacific and Gude. It will be necessary to refer to that litigation in some detail later.

7. For present purposes it is sufficient to say that Natwest asserts that on 31 January 1992 Glandore Pty Ltd ("Glandore") was indebted as a principal debtor to Natwest in the sum of $13,422,120.00; Glen Pacific was indebted as principal debtor to Natwest in the sum of $4,187,201.00 and Mr David Henry Leitch was indebted as principal debtor to Natwest in the sum of $474,136.00. Natwest says that each of Glandore, Glen Pacific, Leitch and Gude has guaranteed the others' indebtedness to the bank and that each of them as at 31 January 1992 was indebted to the bank in the sum of $18,083,457.00, interest on which is accruing at the daily rate of $7,528.16.

8. Natwest says that on or about 20 July 1989 the sum of $7,464,815.00 was advanced to Glandore which amount was due for repayment on 31 July 1991. It says that a further sum of $1.600,000.00 was advanced on or about 20 July 1989, due for repayment on 20 July 1991. In or about August 1989, a further sum of $325,000.00 due for repayment on 4 December 1990 was advanced; and in or about August 1989, a further sum of $315,000.00 due for repayment on 10 August 1991 was advanced; and in or about September 1990, $200,000.00 was advanced. None of these sums has been repaid, nor any interest thereon been paid to the bank.

9. The first amount advanced to Glandore was advanced, says Natwest, to repay debts owing by Glandore to Natwest Leasing Australia Pty Limited ("Leasing").

10. Natwest says that it advanced $2,935,185.00 on or about 20 July 1989 to Glen Pacific which was due for repayment on 31 July 1991; and in or about December 1989, a further sum of $427,000.00, due for repayment on 11 December 1991. Natwest asserts that neither sum has been repaid to the bank, nor has any interest been paid on either sum.

11. The sum of $2,935,185.00 was advanced to Glen Pacific to repay a debt of $2,672,219.00 owed by Gude to Leasing and a debt of $262,966.00 owed by Argyle Park Thoroughbreds Pty Limited to Leasing.

12. It is the case for Natwest that both Gude and Glen Pacific are insolvent, and the application to wind up the companies is sought on the ground of insolvency, pursuant to s. 460(1) and (2)(c) of the Corporations Law.

13. The primary contention of the applicant for the appointment of provisional liquidators, is that such an appointment would permit an independent qualified third party to determine whether the litigation in the Federal Court should be continued. It is said that such an inquiry would, in all likelihood, lead to the conclusion that the litigation was unlikely to succeed, and that to continue that litigation would prejudice the assets of Glen Pacific and Gude, and would cause the assets of both of those companies to be unreasonably wasted.

14. The appointment of a provisional liquidator is resisted by Glen Pacific and Gude; it being submitted that the litigation will not involve any real depreciation of the assets of either Glen Pacific or Gude, since the assets of Glen Pacific and the real property assets of Gude are in the hands of receivers and managers appointed by Natwest. Further, it was submitted that the appointment of a provisional liquidator for the stated purpose, was an impermissible attempt to strangle the litigation almost at its birth, and amounted to an abuse of process.

15. Glen Pacific was incorporated under the Companies Act 1959-1963 in Queensland on 7 June 1963, and its last annual return disclosed its business as that of consultancy/investor. Its current registered address is care of KPMG Peat Marwick, Bundall. Gude was incorporated under the Companies Act 1959-1975 in New South Wales on 25 November 1985, and the general nature of the business carried on by it as disclosed in its annual return, is that of primary producer. Its registered office is also care of KPMG Peat Marwick, Bundall.

16. As at 12 February 1992, the directors of Gude are shown as David Henry Leitch and Janice Pullinger, and the directors of Glen Pacific Pty Ltd are shown as Alma Margaret Leitch and Gary David Leitch. Gary David Leitch, however, became bankrupt on 26 November 1991, when a sequestration order was made against his estate on a petition by NZI Capital Corporation Limited. Pursuant to the provisions of the Corporations Law, he is unable then to carry out functions as a director of Glen Pacific, and unless and until a further director is appointed pursuant to the Corporations Law, no quorum of directors is able to be formed to carry on the business, or make decisions concerning its business.

17. Peter Murray Walker, who is the second respondent in the Federal Court proceedings, is a registered liquidator and partner in Ferrier Hodgson and Co, chartered accountants in Sydney. In an affidavit filed in these proceedings he states that:

" I do not believe that Gude and Glen Pacific ought to be

conducting such litigation. However I have a conflict of

interests (sic) which I acknowledge."

He stated his belief that both David and Alma Leitch also have conflicts of interest between their various capacities as guarantors, shareholders and directors.

18. A notice of demand dated 3 September 1991 by Natwest sought payment from Gude of the sum of $16,413,424.05, and a similar notice of demand dated 3 September was made by Natweston Glen Pacific. No payments have been made pursuant to those notices of demand.

19. On 6 September Mr Walker was appointed receiver and manager by Natwest, pursuant to Queensland real property mortgages registered numbers H792051 and J991832W, of certain grazing land owned by Gude at Biram, Toowoomba, on which Gude raises crops and carries on the business of a horse stud, "Biram Stud".

20. Gude is the lessee of a registered pastoral lease over land known as "Theda Station" in Western Australia. Ferrari Holdings Pty. Limited gave a debenture charge to Gude dated 7 October 1991 in consideration of a debt of nearly a million dollars owed to Gude by Ferrari Holdings. The debenture charged to Gude all the assets and undertakings of Ferrari Holdings. On 6 November 1989, Natwest, consequent upon an assignment by Gude, became the holder of the debenture charge. The material indicates that Ferrari Holdings has made only one payment to Gude in accordance with the provisions of the debenture charge, and it is asserted by Mr Walker that any further payments should be available for the benefit of the creditors of Gude. The prospects of any such payment are not referred to in the material.

21. Mr Walker was also appointed receiver and manager on 6 September 1991 by Natwest of the assets and undertakings of Glen Pacific, pursuant to equitable charge registered number BC893801. Pursuant to real property mortgages registered numbers H571280 and J991831T Mr Walker was appointed receiver and manager on the same day by Natwest of certain land owned by Glen Pacific at Jacob's Well on the Gold Coast.

22. Mr Walker asserts that both Gude and Glen Pacific are insolvent. The principal asset of Gude as disclosed in its 1990 accounts is the Biram horse stud. For the year ended 1990 Gude's accounts show a capital deficiency of $1,400,376.84 and an operating loss of $513,177.70.

23. The principal asset of Glen Pacific as disclosed in its 1990 accounts is the property at Jacob's Well, being a redevelopment site, of which Mr Walker is receiver and manager. The accounts of Glen Pacific for the year ended 30 June 1990 indicate a capital surplus of $7,445,742.33 and an operating profit of $23,439.73.

24. There has been a revaluation of assets in the accounts of Glen Pacific. In addition to the Jacob's Well land, Glen Pacific has, as one of its assets, a private residence known as "Whispering Pines", in Surfers Paradise, which has been the private residence of David Leitch. In the 1990 accounts, based on directors valuation, the "Whispering Pines" property was revalued from $650,000.00 for the 1989 year to $1,800,000.00 for the 1990 year, and the Jacob's Well property was revalued from $957,016.12 for the 1989 year to $7,000,000.00 for the 1990 year.

25. Mr Walker has obtained valuations in respect of both the "Whispering Pines" property and the Jacob's Well property, the effect of which is to suggest that the revaluations in the 1990 accounts are at an over-value. The valuations relied on by Mr Walker are disputed by Mr Leitch on behalf of Glen Pacific.

26. It is clear from the valuation evidence that there is a significant developmental value attaching to the Jacob's Well property, and the discrepancy in value between the directors' valuation and the valuation of Jones Lang Wootton is not as significant as might immediately appear, and turns, in fact, on the value of the site when viewed with its approvals and developmental potential. The same may be said in relation to the property "Whispering Pines". If the contention of Mr David Leitch is correct, that there is approval for 13 to 14 town houses on that two and a half acre site at Bundall Road, Surfers Paradise, a revaluation to $1,800,000.00 does not strike me as outrageously extravagant. I have to say that the informal valuation referred to by Mr Walker, namely a valuation of that property as at 8 October 1991 of $350,000.00, seems to me to be the bargain of the year.

27. Mr Walker says that the operating profit of Glen Pacific, although it is relatively modest, was made up entirely of a management fee income paid by Glandore, which is an associated company of both Glen Pacific and Gude. On 8 October 1991 an official liquidator of Glandore was ordered by the Supreme Court of Queensland and consequently no management fee income is being received by Glen Pacific from Glandore.

28. On 17 February 1992, Mr David Leitch swore an affidavit which was filed in court on that day. He says that a creditor's petition against him by NZI Capital Corporation Limited was heard on Friday 14th February 1992 before Deputy District Registrar Allen. That petition, he says, was supported by Natwest as a supporting creditor. The decision in respect of that matter is reserved, but it was submitted that the conduct by Natwest in relation to that petition was with the object of frustrating Mr Leitch's personal capacity to pursue the Federal Court proceedings No. Q174 of 1991.

29. Concerning those proceedings, Mr Leitch says that the applicants claim damages against Natwest for certain breaches of agreements made by Natwest in relation to the loan transactions to which I have earlier referred. In those proceedings, each of the applicants seeks relief by way of release of their respective guarantees and securities to Natwest, and further, or alternatively, seek the benefit of a set-off by Glen Pacific and Glandore of the damages suffered by them as alleged in the statement of claim against any indebtedness those companies might otherwise have to Natwest.

30. The applicants' case more particularly is that in or about July 1989 there was a contract made between the applicants, Glandore and Natwest. The contract was oral, made in the course of conversations between Mr David Leitch and a solicitor, Mr Arthur Grix, at the office of Natwest on the Gold Coast and by telephone between Mr Leitch and Mr Grix. According to the statement of claim, the terms of that oral agreement were:

" (a) That all existing indebtedness of the Applicants and

the Third Respondent to the First Respondent, Natwest

Investments Australia Pty. Ltd. or Natwest Leasing

Australia Pty Ltd. would be extinguished;

(b) That in lieu of the indebtedness referred to in

subparagraph (a), the Fifth Applicant and the Third

Respondent would be indebted to the First Respondent

in the several sums of $A5 million on the following

terms:

(i) interest would be payable at the rate of 7.5%

per annum;

(ii) interest would be capitalised and payable at

the expiration of the term of the loan;

(iii) the term of each loan would be a period of two

years.

(c) The security for the aforesaid total sum of $A10

million would be as follows:

(i) A floating charge over the assets and

undertaking of the Third Respondent;

(ii) A first registered mortgage over a hospital

and land at Gympie owned by the Third

Respondent;

(iii) A registered mortgage over Crown leasehold in

the names of the First, Second and Third

Applicants on which the Third Respondent

conducted a pastoral business known as

'Oonavale';

(iv) A first registered mortgage over land owned by

the Fifth Applicant at Jacob's Well;

(v) A personal guarantee of the First Applicant.

(d) That in addition to the sum of $A10 million, the First

Respondent would advance further monies to the

Applicants and Third Respondent to pay out certain

specified creditors, including the Commissioner for

Taxation;

(e) That the First Respondent would advance monies to the

Fifth Applicant to pay out an existing mortgage on a

house property known as 'Whispering Pines', such

monies to be secured by a first registered mortgage

over the said property;

(f) That the First Respondent would fund the purchase of

land situated at Cleveland and Logan City to be

acquired by the Third Respondent, the security for

which would be a first registered mortgage over the

said land and would arrange finance for the

construction of a private hospital on each piece of

land.

(g) That the First Respondent, Natwest Investments

Australia Pty. Ltd. and Natwest Leasing Australia Pty.

Ltd., would release all existing securities including

but without limiting the generality of the foregoing:

(i) A mortgage over land situated at Gympie owned

by the Third Respondent;

(ii) a Mortgage over land situated at 242 Benowa

Road, Benowa owned by the First Applicant;

(iii) A mortgage over land known as 'Biram Stud'

owned by the Fourth Applicant;

(iv) A mortgage over land owned by Argyle Park

Thoughoubreads (sic) Pty. Ltd.

(h) That the First Respondent would advance further funds

during the period of two years from the date of the

contract at commercial rates to meet the ongoing

creditors of the Applicants and the Third Respondent;

(i) That during the two year term of the loan, the

Applicants would attempt to realise assets in order to

reduce the indebtedness to the First Respondent;

(j) That the Applicants and the Third Respondent would

forego any right of action against the First

Respondent, Natwest Investments Australia Pty. Ltd. or

Natwest Leasing Australia Pty. Ltd. in respect of the

first and second loans and the dispute pleaded at

paragraph 12. "

31. It is alleged that in breach of the contract Natwest failed to pay out the existing mortgage on the property known as "Whispering Pines", failed to release existing securities in respect of the assets of Gude, failed to advance moneys in respect of creditors of the applicants and Glandore, and failed to arrange finance for the construction of private hospitals on the land at Cleveland or Logan City.

32. The allegation contained in paragraph 16 of the statement of claim is important, namely:

" At all material times, the First Respondent knew that the

assets of the Applicants and the Third Respondent were

treated by them, inter se, as common and dealt with the

Applicants and the Third Respondent and each of them as if

each of them beneficially controlled and enjoyed the assets

of each other of them. "

As I understand it, this assertion is made to meet any objection that might be taken that any rights of action arising out of the allegations made by the applicants are those of entities other than Glen Pacific or Gude and therefore of no relevance in considering the position of Glen Pacific or Gude.

33. It is said in paragraph 19 of the statement of claim that Natwest delivered various documents to the applicants and Glandore for execution -

" ...in apparent performance of the contract and thereby

represented that such documents were for the purpose of

giving effect to the contract. "

34. The statement of claim further alleges that as a result of conduct in contravention of s. 52 of the Trade Practices Act 1974 the applicants have suffered loss.

35. A further agreement made orally in or about June 1991 between Mr David Leitch and a Mr Teroxy on behalf of Natwest is asserted. It was said, pursuant to that agreement, that Natwest would waive any existing breach of the terms of the loans or the securities by the applicants or Glandore and that Natwest would extend the term of all outstanding loans for a further period of eighteen months, with interest during such period to be capitalised, and take no action to enforce their securities during such period, and that the applicants and Glandore would progressively realise their assets in order to repay the loans within 18 months.

36. It was said that the appointment of Mr Walker as receiver and manager of the assets of Glen Pacific on 6 September 1991 and of Glandore and the personal applicants on or about 20 August 1991 was a breach of that agreement, and as a consequence the appointment of Mr Walker was unlawful. It is said that Mr Walker performed his duties as receiver and manager "in reckless disregard of the rights" of Glandore and had dealt with the assets so as to cause loss to the applicants. It was said that because of the unlawful appointment of Mr Walker, Natwest is liable for the loss and damage occasioned by his activities.

37. The statement of claim asserts that, by virtue of the matters pleaded, there are no moneys owing by the applicants or any of them to Natwest.

38. Natwest in its defence says that a series of agreements there specified were entered into on or about 20 July 1989. It says "that between or about 3 July 1989 and on or about 19 July 1989 there were discussions between Leitch and/or Mr Alan Couper, solicitor, for and on behalf of all of the applicants, and Mr Grix and/or Mr Eames, solicitor, for and on behalf of Natwest as to the terms to be incorporated in the written agreements; ".

39. It says that "all terms concluded in such discussions were embodied in and reduced to the agreements in accordance with the intentions of all parties thereto and the requirements of the Property Law Act 1974" and Natwest further says that the agreements were delivered on or about 19 July 1989 by Messrs Feez Ruthning, solicitors, for and on behalf of Natwest, to Messrs Couper and Couper, solicitors, in accordance with directions of Mr Alan Couper, solicitor, for and on behalf of the applicants. Natwest says that it complied in all respects with the terms of the written agreements.

40. The contention of Natwest, in summary, is that prior to 17 July 1989 there had been a threat of action in respect of foreign currency transactions and were discussions concerning a compromise. On 17 July security documents to give effect to a compromise were submitted but those security documents and the basis of the compromise which they reflected was rejected. After discussions between solicitors, a restructured agreement was struck and on 19 July 1989 new security documents were submitted.

41. A comparison between the documents submitted on the 17th and the 19th shows that a significant number of deletions were made, a number of variations in the contents of some of the security documents occurred, and there were also some additions made. Natwest says that on 20 July 1989 the securities were executed and returned, previous loans were fixed at their total indebtedness and paid out by advances pursuant to the new securities, and in particular, the sums referred to earlier in these reasons as being advanced on 20 July 1989 to Glandore and Glen Pacific were then made.

42. The claim asserted in paragraphs 13 and 14 of the statement of claim in the Federal Court proceedings would, one suspects, prima facie be viewed with a degree of scepticism. That attitude is strengthened when regard is had to the affidavit of Mr Eames, filed in these proceedings, and in particular, a letter dated 17 July 1989 from Feez Ruthning to Primrose Couper Cronin Rudkin (which details at some length the documents then required to be executed under the arrangements that would have to be made concerning the compromise) and a further letter of 19 July 1989 also from Feez Ruthning to Primose Couper Cronin Rudkin from which a restructured transaction can clearly be deduced.

43. In addition, there are two documents signed by the solicitors on behalf of first Glen Pacific and secondly on behalf of Glandore which tend strongly against the allegations in paragraphs 13 and 14 of the statement of claim. In the case of the document which relates to Glen Pacific, it is headed, "CONFIRMATION OF FORMALITIES OF EXECUTION" and is addressed to Glen Pacific, and under the heading "RE: Proposed financial accommodation from the Mortgagee of $2,935,185" the following appears:

" As solicitors for the abovenamed borrower in relation to the above

transaction, we hereby confirm that:-

. Each party to the documents was given a copy and was made

aware by us of the general effect of the terms of each of the

documents submitted for execution (including terms

incorporated by reference). COPIES WERE RETURNED FOR

STAMPING.

. We believe that the Borrower (and each of them, if more than

one) understands the general nature and extent of the

obligations to be incurred under the documentation submitted.

. We believe that all sureties:-

(i) understand the general nature and extent of the

obligations to be incurred by them under the

documentation submitted;

(ii) are generally aware of the financial circumstances of

the Borrower; and

(iii) have had reasonable opportunity to receive independent

legal advice concerning their obligations as sureties,

BUT HAVE NOT REQUIRED SUCH ADVICE.

We are not aware of any circumstances in the nature of bankruptcy,

winding up, forgery, fraud, duress, inability to read or understand

English or otherwise which may result in the terms of the documents

submitted by you in relation to the said transaction not being

enforceable or of full effect in accordance with their terms. WE

DO NOT CLAIM ABILITY IN THE FIELD OF MENTAL CAPACITY.

DATED this 20th day of JULY, 1989. "

It is signed in the firm name of the solicitors for the borrower. The document addressed to Glandore is in identical terms - save that the proposed financial accommodation is in the sum of $9,064,815.00.

44. Notwithstanding the reservations that seem to me to flow from the nature of the claim of the applicants, and the documents that are in evidence before me, it is not possible to say on the basis of the affidavit material that the applicants' case in the Federal Court proceedings G174 of 1991 is without foundation. However unlikely it may be that the case as pleaded will be accepted or made out, it is not possible to say that that will not happen. The case has been sworn to, and in the absence of any cross-examination or observation of the relevant witnesses, a determinative conclusion is, of course, not possible.

45. The position therefore is that the debt on which Natwest relies is disputed.

46. It is not possible on the present material to say that the contention of Glen Pacific and Glandore is without foundation.

47. The contention by Natwest is that nonetheless the court should appoint an independent officer to consider the matter.

48. In Re Club Mediterranean Pty Ltd (1974-1975) 11 SASR 481 Bright J said, at p 484:

" Where the company itself applies for the appointment of a

provisional liquidator the appointment is usually made

without query, for such an application implies that the

board of directors of the company considers that such

appointment is necessary or would be beneficial. Where a

petitioning creditor applies and the company neither

consents to nor opposes the application the court will look

at the evidence supporting the application to see if that

evidence raises a prima facie case for the appointment, for

which purpose in those circumstances relatively slight

evidence would suffice. By 'relatively slight' I mean to

imply a contrast to the relatively strong evidence that

would be required in an opposed application.

Where the petitioning creditor makes the application and the

company opposes it the court must come to a conclusion as to

the degree of urgency and of need established by the

petitioning creditor and the balance of convenience. The

circumstances will vary. Sometimes the company may be

continuing to trade at a loss or to incur further

liabilities. Sometimes assets may require to be protected

from dissipation or from seizure or encumbrance. Sometimes

the right of the company to assets or the right to exercise

an option, enforce a contract, reject a claim or otherwise

to act for the apparent benefit of the company may be in

issue and the issue may need to be resolved or carried

forward or rights may need to be protected as a matter of

urgency. Sometimes the company may be paralysed by a

dispute between shareholders or directors, or by some form

of interim court order. Sometimes there may be a conflict

of interest between a director or principal officer of the

company and the company itself with regard to some right of

property and that conflict may render it difficult for the

company's rights to receive proper protection.

I have not tried to compile an exhaustive list; commercial

affairs are infinitely various. "

" I believe that unless a completely independent competent

person comes in to take hold of the situation there is a

strong possibility (to put it no higher) that there will, in

one way or another, be further acts, neglects and

proceedings which will be detrimental to creditors. "

" ...it is right on balance that a provisional liquidator be

appointed in this case. "

49. Rural Industries Co-operative Society Ltd v Porky Pigs Pty Ltd (1988) 12 ACLR 794 was a case in which the applicant held the majority of shares in the respondent. There were disputes between the majority and minority shareholders at the time of the proceedings. Importantly, the respondent was solvent, had no creditors, and its assets were in cash. There was litigation against former directors of the respondent alleging breach of fiduciary duties owed to the company and claiming relief under the then s. 229 of the Code.

" Counsel for Rural Industries argued that, but for questions

relating to the resolution of Action No. 1357 of 1987, there

would be an unanswerable case for an order winding up Porky

Pigs on the application to Rural Industries as holder of

50.69 per cent of the issued shares under the 'just and

equitable' ground. I agree. "

" Mr Robertson argued that a provisional liquidator will not

usually be appointed unless the material before the court shows

that a winding up order is likely. That proposition may be

accepted. He submitted that there is no reason why the company

should be wound up, and no likelihood that it would be once the

outstanding litigation is resolved. For the reasons I have

already given I cannot accept that submission. "

" The facts might establish a good cause of action, or they

might not. It is impossible on the information before the

court to say whether any and which of the allegations of

breach of fiduciary duty can be established, and if so what

loss flowed to the company. If a provisional liquidator is

appointed it will be his duty to evaluate the issues raised

in those proceedings by the minority shareholders. There is

no reason to think that the provisional liquidator would not

do so competently, conscientiously and impartially. And if

the provisional liquidator concluded that the action was

without substance and should be dropped, his decision could

be reviewed on appeal under s. 538 of the Code on the

application of the minority shareholders. "

51. Section 1321 of the Corporations Law is the section which now permits review of decisions made by a provisional liquidator.

" If it is not possible for the minority shareholders to make

clear the merits of the plaintiff's claim to a provisional

liquidator, and those who advise him, that may indicate that

the merits cannot be made sufficiently clear to a court to

have any real chance of success. "

" The appointment of a competent, independent person, in the

person of a provisional liquidator, to control the company,

who owes no allegiance to either side, is highly desirable

in the interests of the company and all its shareholders. "

His Honour made an order for the appointment of a provisional liquidator.

53. That case is important for present purposes in two respects. First, a provisional liquidator will not usually be appointed unless the material establishes that a winding up order is likely. That is a position which I am unable to reach on the material presently before me. Secondly, that case was one essentially of internecine strife between the members of a company, involving directors and former directors. The present Federal Court litigation is not of that kind.

54. Riviana (Aust) Pty Ltd v Laospac Trading Pty Ltd (1986) 10 ACLR 865, was not a case where the debt was disputed. It is therefore quite unlike the present. Young J said at p 866:

" As I understand the practice of this court over many years,

if there is an application made in the presence of the

company and suspicious circumstances are disclosed, which

may not amount to putting the assets in jeopardy, and the

plaintiff seeks a provisional liquidator and presumably is

willing to fund the provisional liquidator to make

investigation then ordinarily the court will appoint a

provisional liquidator to make that investigation, though on

an ex parte matter it may not have been so bold.

I have been referred by counsel for the plaintiff to several

decisions, including that of McLelland J in Tickle v Crest

Insurance Co of Australia Ltd (1984) 2 ACLC 493. His Honour

there gave guidance as to the approach in this sort of

application, indicating that the plaintiff must show a real

prospect that on the hearing of the winding up proceedings the

company will be ordered to be wound up and that the

circumstances are such as to render it proper and desirable in

the public interest to appoint a provisional liquidator. "

55. In Clemada Pty Ltd v Hire It Pty Ltd (No. 2) (1990) 3 ACSR 202, Young J said at p 204-5:

" The appointment of a provisional liquidator is an unusual

occurrence in this class of case. The older authorities said

that unless there was a petition by the company or the

application was unopposed or the evidence showed that the

assets of the company were to some degree in jeopardy, a

provisional liquidator was unlikely to be appointed.

However, in more recent years the courts have gone further.

In Re Rosslyn Private Hospital Pty Ltd Needham J, 22 May

1981, for some reason never reported, the situation was that

there was a deadlock between the sole directors and the sole

shareholders of the company. The court was presented with

material which suggested that one of the shareholders had

been using employees of the company for his own private

purposes and had transferred some of the company's assets to

himself at what was apparently an undervalue, and that there

were other unusual occurrences in the affairs of the

company. Needham J said that he thought there was no doubt

that the petitioner had established a prima facie

entitlement to a winding up on the ground of deadlock and

that also a provisional liquidator should be appointed.

This was because his Honour said: 'The petitioner has made

out a strong claim for the appointment of some independent

person to take over the management of this enterprise and to

make investigations as to the previous management of the

companies.'

Similar utterances have been made in South Australia; see Re

Club Mediterranean Pty Ltd (1975) 11 SASR 481 at 484 and

Rural Industries Co-op Society Ltd v Porky Pigs Ltd (1988)

12 ACLR 794; 6 ACLC 376.

Accordingly, I think that there is jurisdiction in the court

to make an appointment of a provisional liquidator, if in

the court's discretion it thought it appropriate to do so.

On this sort of application the court must look at the

public interest and also to questions of the balance of

convenience between the disputants, in so far as that does

not cut across matters of public interest: Re Petrochemical

Industries Ltd (1989) 15 ACLR 636. "

56. Finally, in Re Bedford Insurances Pty Ltd (1977-78) CLC 140-418, Needham J held that an independent person responsible to the court should take control of the company, and examine the position of some associated companies, and take such action as he could to preserve the assets of the company. His Honour said at p 29,991:

" Accepting, for the purposes of this application, that the

company could show that there is a bona fide dispute as to

the petitioner's debts, it is still unable to pay its debts

and the creditor, Manufacturers Mutual Insurance, could, if

it wished, seek to be substituted for the petitioner (Rule

52 of the Companies Rules). "

57. That factual position is not the same as in this case. Independent of the question of obligations owed to Natwest, there is no material to establish the likely insolvency of either Glen Pacific or Gude. Needham J continued:

" It is, therefore, necessary to consider the competing

interests in the maintenance or the discharge of the

provisional liquidation. I am not satisfied that any damage

would ensue to the company by the continuation in office of

the provisional liquidator. On the other hand, the position

of the debts owed by Mr Kelly's companies, the only source

from which the company's debts could be paid, raises a

serious question. "

" In these circumstances, it seems to me that an independent

person responsible to the Court should take control of the

company and examine the position of Mr Kelly's companies and

take such action as he can to preserve the only assets of the

company. "

58. Unlike a number of the cases to which reference has been made, this is not a case involving internal disputes between either directors or shareholders in either of the companies the winding-up of which is sought.

59. So far as any possible need to protect assets is concerned, Natwest has appointed a receiver and manager of all the assets of Glen Pacific and a number of the real property assets of Gude.

60. It seems to be the case that the funding of the litigation on behalf of the applicants will not be a drain on the assets of the companies, at least in any primary sense. The assets of Glen Pacific and Gude being substantially under the control of Natwest, any funding of the litigation provided by the applicants to their legal advisers must, it seems to me, come from sources outside those under the control of Mr Walker.

61. Finally, a consideration of the capacity to pay Natwest's costs and the source of any such payment, in the event that the Federal Court proceedings against Natwest are unsuccessful, does not seem to me to be a sufficient reason for the appointment of a provisional liquidator who Natwest, one assumes, hopes will form a view as to the prospects of success such as to persuade the provisional liquidator to terminate those proceedings.

62. In my opinion, the material before the court does not show that a winding up order is likely. The debt on which Natwest relies is disputed; it is not possible to say that the claims by the applicants in the Federal Court proceedings are without foundation, and it is not possible otherwise to say that, independently of the obligations owed to Natwest, either Glen Pacific or Natwest are insolvent and likely to be wound up.

63. I decline in the exercise of the discretion conferred on the court by s. 472(2) to appoint a provisional liquidator of either Glen Pacific or Gude.

64. The notices of motion are dismissed and the applicant on the notices of motion is to pay the respective respondents' costs, to be taxed if not agreed.

Re Natwest Australia Bank Limited v Glen Pacific Pty Ltd

At a glance

Court

Decision date

Before

Source

Judgment (98 paragraphs)

Re Natwest Australia Bank Limited v Glen Pacific Pty Ltd (Receiver and Manager Appointed) and Gude Pty Ltd (Receiver and Manager Appointed) [1992] FCA 54; (1992) 6 Ascr 711, (1992) 10 ACLC 455 (20 February 1992)

Parties

Legislation Cited (3)

Cases Cited (1)