//
© 2026 Zoe. All rights reserved.
Zoe is a legal information platform. Always consult the Federal Register of Legislation for authoritative text.
[2005] VSC 504
Supreme Court of Victoria
2005-12-06
WHELAN J
Original judgment source is linked above.
CORPORATIONS - Liquidators - Directions - Application for approval of licence agreement pursuant to s 477(2B) of the Corporations Act 2001 (Cth) - Directions and approval of licence agreement in accordance with the liquidators' commercial judgement.
1 S & D International Pty Ltd is the trustee of the S & D International Unit Trust. The trust assets include a residence and business premises at 580 Barkly Street, West Footscray, upon which is conducted a business known as Bharat Traders International, and a vacant block of land in Melton.
2 The shareholders and unit holders are Mr Dinesh Malhotra and Mrs Sheela Tiwari and/or interests associated with her. This position was only established after Mr Malhotra successfully brought proceedings against Mrs Tiwari, resulting in a judgment of Balmford J on 16 February 2005.[1]
3 In April 2005, in the course of an application by Mrs Tiwari for a stay of Balmford J's orders, the parties agreed to the appointment of Mr Horne and Mr Vince as administrators under Part 5.3A of the Corporations Act 2001 (Cth). They have since been appointed liquidators.
4 Mr Malhotra has contended in separate proceedings before Mandie J (proceeding no. 7149 of 2005) that the processes of the Corporations Act 2001 (Cth) have been misused and contravened and that the liquidation should be terminated. Mandie J has reserved his decision on that application.
5 On 30 June 2005, Cummins J, in the original proceeding which was the subject matter of the judgment of Balmford J, granted an injunction prohibiting the liquidators from disposing of the real property. On 19 July 2005, on an application made in this proceeding by the liquidators seeking directions as to the possible sale of the business, Mandie J directed the liquidators that they should not sell the business.
6 By an interlocutory process issued in this proceeding on 18 August 2005, the liquidators now seek directions as to whether they are entitled to grant a licence to operate the business to either Mr Malhotra or to a member of the Tiwari family, and seek the approval of any such licence agreement pursuant to s 477(2B) of the Corporations Act 2001 (Cth). Approval is necessary as the proposed licence has no fixed end date and accordingly might remain in force beyond three months.
7 The liquidators' concerns can be simply stated. They cannot sell either the business or the property. Currently the business is incurring losses of $5000 per week, according to the affidavit of one of the liquidators, Mr Horne, sworn 1 December 2005. Mr Malhotra does not accept that figure, but it does seem clear that on any view some substantial losses are being suffered.
8 The trading losses are, in the liquidators' joint view, "unsustainable". However, on closure of the business, the liquidators' assessment is that the value of the stock would "disappear" and the value of the plant and equipment would become "negligible".
9 On 24 August 2005, the liquidators' solicitors sought to address this situation by entering into a licence arrangement. They forwarded to the solicitors for the respective contending parties, which I will refer to as the Tiwari interests and Mr Malhotra, a draft Stock Purchase and Licence Agreement. They invited the parties to insert a licence fee and to return the agreement to them. The liquidators' solicitors emphasised that amendments to the terms contained in the circulated draft would be disregarded.
10 Mrs Sheela Tiwari's husband, or domestic partner, Mr Markandey Tiwari, executed the circulated agreement without amendment, although he did so in his own name "or nominee". Notwithstanding the solicitors' advice, Mr Malhotra, in his response, sought to impose additional conditions that were not acceptable to the liquidators. As Mr Malhotra has since revised his proposal, it is not necessary to go into why that was the position.
11 The liquidators determined that they should accept Mr Markandey Tiwari's offer. Mr Malhotra is opposed to this course. He has filed material in this proceeding and his counsel has referred me to material in the related proceeding upon which Mandie J is presently reserved, in which Mr Malhotra sets out complaints as to the conduct of the Tiwari interests and as to the conduct of the liquidators.
12 In relation to his complaints concerning the conduct of the Tiwari interests, those complaints relate to conduct both before and after the liquidators' initial appointment as administrators. He is concerned that the Tiwari interests have diverted the import and wholesale aspect of the trust business to a related company prior to the appointment, that they have diverted revenue from the business both before and after the appointment, and most recently that they have had an involvement in a competing retail business that has opened close to the Barkly Street premises.
13 In relation to his complaints concerning the liquidators, it is impossible to summarise those complaints, save to say that they cover a very broad range of the liquidators' activities and include allegations of gross incompetence and bias.
14 Under the existing orders, neither the property nor the business can be sold. It would be most undesirable for the business to be simply closed. It would also be most undesirable for the liquidators to continue to incur substantial weekly losses. Thus, if there is an acceptable alternative that avoids these undesirable courses, then that is the alternative which the liquidators should take. The only such alternative is to licence the conduct of the business to one or other of the contending parties on terms that eliminate or substantially reduce the risk of ongoing trading losses.
15 The fundamental issue then is to which party should the liquidators be directed to enter into a licence arrangement. Whilst it is a commercial decision for them, the level of acrimony and accusation revealed in the material establishes, in my view, that the liquidators rightly apprehend that they are at significant risk of a subsequent allegation of breach of duty. In the circumstances, it seems to me that a specific direction is appropriate.
16 The problem with licensing any person among the Tiwari interests is the serious concerns raised by Mr Malhotra's material as to the conduct of the Tiwari interests concerning diversion of business, diversion of cash, and involvement in a competing retail business.
17 Mr Dinesh Malhotra, on the other hand, has made the most serious allegations against the liquidators, which remain unresolved. One of Mr Malhotra's alternative suggestions to the licensing arrangement was that he be employed by the liquidators. I think that suggestion is clearly unworkable.
18 On 1 December 2005, Mr Malhotra put to the liquidators a new proposal. The proposal is as follows:
"Pending the delivery of judgment [a reference to Mandie J's reserved decision], I will pay the liquidators a sum of $1700.00 per week as licensee to run the business and take over the stock at value provided:
(a) I get control of the whole of the property at 580 Barkly Street West Footscray including vacant possession of the dwelling; and
(b) Should the need arise, the liquidators agree to assist me in arranging the pay out of David Mond including the provision of an acknowledgement of the rights of subrogation in the same way you assisted the Tiwaris in paying out Col. Naresh Malhotra and brought David Mond as replacement of CBA as secured creditor; this new financier will be priority one creditor ahead of anyone else - including the liquidators."
19 Counsel for the liquidators told me that the first condition is unacceptable and is inconsistent with clause 4.3 of the Stock Purchase and Licence Agreement circulated by the liquidators' solicitors. Clause 4.3 reads:
"The parties acknowledge and agree that if the Liquidators elect to grant the Licence to Dinesh Malhotra, the Liquidators will terminate the Residential Licence within seventy-two (72) hours and request that the Tiwaris vacate the Residence, provided always that the Liquidators shall bear no obligation to compel that result nor any liability in respect of any refusal or failure by the Tiwaris to vacate the Residence."
20 The "Residence" is referred to in the definitions in the Stock Purchase and Licence Agreement as being the residence forming part of the premises at 580 Barkly Street, Footscray. The "Residential Licence" is referred to in the recitals. Recital G reads: "The Liquidators have previously granted a licence to the Tiwaris to occupy the Residence (Residential Licence)."
21 I was told by counsel for both the liquidators and Mr Malhotra that a prior attempt to evict the Tiwaris from the premises, at the suit of a person who was then a secured creditor, had resulted in court proceedings for an injunction that were resolved when the secured creditor was repaid by interests associated with Mr Mond, who is apparently sympathetic to the Tiwari interests.
22 The liquidators' counsel told me that they consider that condition (a) would be likely to lead to similar court proceedings and to the possibility of confrontation on site. The liquidators' counsel told me that they cannot accept condition (b) either, as that would involve them binding themselves in advance on a hypothetical legal issue, not only as to subrogation, but also as to priority.
23 In reply, counsel for Mr Malhotra said his client would give up condition (a) and accept that clause 4.3 would, in his words, prevail, but he said his client insisted on condition (b). He explained that this was essential because his client anticipated the possibility that Mr Mond, as a secured creditor, might seek to take possession if Mr Malhotra were granted a licence.
24 As the authorities to which I was referred by counsel for Mr Malhotra make clear,[2] in this context the liquidators' commercial judgement is itself a matter that the Court will not lightly override. The liquidators' commercial judgement is that a Tiwari licence arrangement is preferable, as it contains a reduced risk of immediate further disruption, delay and legal proceedings emanating from the issues related to occupation of the premises and possible action by the secured creditor.
25 It seems to me that I should give the liquidators a direction, and make an order approving an agreement entered into by them in accordance with this commercial judgement that they have made. A direction and approval of an arrangement to this effect is in no way a sanctioning of any aspect of the Tiwari's past conduct, as to which I cannot, of course, make any finding. I do observe, however, that the proposed licensing arrangement has significant advantages in relation to at least some of the risks associated with Mr Malhotra's complaints, in particular, in relation to his complaints as to the disappearance or failure to account for cash takings. Hopefully, such an arrangement will be short lived in any event, as the entire position will need to be reassessed upon delivery by Mandie J of his reserved decision.
26 I am not, however, prepared to sanction an agreement that leaves the identity of the licensee entirely at Mr Markandey Tiwari's discretion. It seems to me that the liquidators need to know who the licensee is and to assess the licensee's credit-worthiness.
27 Accordingly, the orders I propose are: (1) I direct the liquidators that they may properly enter into an agreement substantially on the terms of the agreement in Exhibit "SH-2" to the affidavit of Mr Stirling Lindley Horne sworn 29 November 2005 with either Mr Markandey Tiwari or a person nominated by him who they consider to be credit-worthy; (2) pursuant to s 477(2B) of the Corporations Act 2001 (Cth), I approve the entry by the liquidators into an agreement in accordance with that direction.
28 [Discussion as to costs ensued].
[1] Malhotra v Tiwari [2005] VSC 25.
[2] Cornelius v Coplex Resources NL [2002] FCA 1378; Re Gate Gourmet Australia Pty Ltd (In Liq) [2005] NSWSC 392.