Scott (Trustee) v Icicek Holdings

GLEESON J: 1 By further amended interlocutory process filed on 13 March 2020, the plaintiff (liquidator) sought several orders to facilitate the conclusion of the winding up of Icicek Holdings Pty Ltd (company). 2 The original interlocutory process was served on the Australian Securities and Investments Commission (ASIC). ASIC did not object to the orders sought and did not participate in the proceeding. 3 The liquidator's counsel informed the Court that the original interlocutory process was also served on Andrew Scott, the former trustee of the bankrupt estate of Ishak Cicek (Mr Cicek), and trustee of a composition which led to the annulment of Mr Cicek's bankruptcy. Mr Cicek is one of the two shareholders of the company and was the sole director immediately prior to his bankruptcy. The trustee did not oppose the application and did not propose to participate in the hearing. 4 Each of the shareholders (that is, Mr Cicek and his wife, Ulker Cicek (Mrs Cicek)) have signed irrevocable authorities authorising the liquidator to pay any amount to which they are entitled from the liquidation to Mr Scott. 5 After hearings on 5 and 13 March 2020, I made orders to the effect sought by the liquidator. These are my reasons for making those orders.

Background 6 The company was registered as a company in August 2003. The shareholders of the company are Mr Cicek and his wife. 7 Mrs Cicek was the sole director of the company from its registration until 1 April 2014. 8 Mr Cicek was the company's sole director from 1 April 2015 to 18 June 2015, when he was declared bankrupt and automatically disqualified from being a director or otherwise managing a company. 9 The company has not had a director since 18 June 2015. 10 On 2 December 2015, on Mr Scott's application, the company was ordered to be wound up pursuant to s 461(1)(k) of the Corporations Act 2001 (Cth) (Act): Scott (Trustee) v Icicek Holdings [2015] FCA 1387. 11 The only identified activity of the company was to own a single parcel of real property at Smithfield (Smithfield property). 12 In his affidavit made on 10 February 2020, the liquidator set out the history of the liquidation including a summary of investigations undertaken, efforts to locate creditors, the sale of the Smithfield property by a secured creditor, and the receipt of net proceeds from the sale of the property of $232,932.47. Three creditors (Fairfield City Council, Water New South Wales and the Office of State Revenue) were paid in full at the time of settlement of the sale. 13 The liquidator also states that neither of the former directors of the company submitted a Report as to Affairs. The liquidator obtained some books and records from the company's former accountant and other information about the company from various third parties. 14 On about 16 May 2017, the liquidator and Mr Robinson issued a report to creditors which stated, among other things: (1) the amount of the recovery from the sale of the Smithfield property and that $8,688 had been recovered from the company's pre-appointment bank account; (2) the Deputy Commissioner of Taxation (DCT) had proved for a debt totalling $68,403.00 in respect of unpaid income tax liabilities and it was anticipated that a dividend of 100 cents in the dollar would be paid to this sole known unsecured creditor; (3) the costs of the "petitioning creditor" (which I take to be a reference to Mr Scott as trustee of Mr Cicek's bankrupt estate) had been paid in full; and (4) the liquidators were not aware of any trade or other creditors. The liquidators expressed the view that, given the nature of the business, the company's creditors likely consisted of council, strata and water rates, all of which were paid in full upon settlement of the sale of the Smithfield property. The liquidators noted that they had written to all major utility companies upon their appointment to identify any accounts in the name of the company, but none were identified. 15 On 17 August 2017, the liquidator and Mr Robinson published a notice of intention to declare a dividend under reg 5.6.65 of the Corporations Regulations 2001 (Cth) on the ASIC insolvency notices website. The notice included a call for all debts or claims not already admitted to be submitted by 8 September 2017. 16 The DCT was paid $78,148.18 which comprised the proved debt and statutory interest but the DCT subsequently refunded the statutory interest amount of $9,745.10.

Related party loans 17 During his investigations, the liquidator ascertained that: (1) on 31 October 2014, $400,030 was withdrawn from the company's bank account; and (2) on 3 November 2014, the company paid $25,000.00 by way of a bank cheque made payable to Banali Trust and credited to an account held by Banali Pty Ltd (Banali). 18 Based on Mr Scott's investigations, the liquidator determined that Mr Cicek borrowed $25,000 from Banali and that the amount of $25,000 should be treated as a loan to Mr Cicek and distributed in specie. 19 The liquidator determined that the company had transferred $400,000 to a Turkish bank account in the name of Mrs Cicek. When it became apparent that creditors would receive 100 cents in the dollar, the liquidator decided not to pursue recovery action against Mrs Cicek for this amount. Instead the liquidator decided to progress the liquidation to the shareholder distribution stage as the money was either a loan to Mrs Cicek and could be distributed in specie or, it was a shareholder distribution made to her at the time. The liquidator considered that, if the payment was treated as a loan it could be distributed in specie and Mr and Mrs Cicek could come to an agreement as to the repayment at the shareholder level. 20 In about July 2018, Mr Cicek put forward a composition proposal (composition) under s 73(1) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act). As part of the composition, Mr Cicek proposed that, if creditors voted in its favour, the full amount of any shareholder distribution to be received by them in respect of the company (then estimated at $90,000-$100,000) would be vested in the trustee. 21 On 26 July 2018, the creditors of Mr Cicek's bankrupt estate resolved to accept Mr Cicek's composition and Mr Cicek's bankruptcy was annulled. 22 Mr Cicek's bankruptcy was annulled on 26 July 2018 pursuant to s 74 of the Bankruptcy Act. 23 To give effect to the composition proposal, Mr Cicek signed an irrevocable authority authorising and directing the liquidator and Mr Robinson to pay to Mr Scott monies that the liquidator declared Mr Cicek was entitled to from the liquidation of the company. Mrs Cicek signed a relevantly similar irrevocable authority. 24 The end result is that there are no remaining creditors of the company and the liquidator has been authorised and directed to pay any surplus to Mr Scott.

Remuneration 25 The liquidator's remuneration of $55,337 excluding GST was approved at a meeting of creditors on 30 April 2017, comprising remuneration of $39,337 for the period 2 December 2015 to 15 May 2017 and up to a maximum of $25,000 for the period 16 May 2017 to the conclusion of the liquidation. 26 The liquidator gave the following evidence concerning his claim for additional remuneration: As at the date of executing this affidavit, additional remuneration of $15,063 (excluding GST) has been incurred in excess of the amount approved by creditors on 30 April 2017. I anticipate incurring in the future, further remuneration after executing this affidavit in the amount of $5,000 (excluding GST). 27 The liquidator's evidence was supported by an excel spreadsheet which recorded the tasks done to support the claim for the additional amount of $15,063. 28 In a further affidavit, the liquidator verified that he considered the fees for work to date were both necessary and reasonable. The liquidator also identified the work required to give effect to the distribution of the surplus as to deal with the deregistration of the company.

Distribution of surplus 29 As at 4 February 2020, the liquidator estimated that the surplus funds available for distribution were $51,878. By an affidavit made on 13 March 2020, that amount was reduced to $44,865, taking into account an additional amount for legal fees (including counsel's fees) of $7,014. 30 Having regard to the irrevocable authorities, the liquidator proposed to distribute the surplus, less his costs and expenses of the application and any costs associated with the destruction of the company's books and records post de-registration of the company to the trustee. 31 Section 488(2) provides relevantly that a liquidator may distribute a surplus only with the Court's special leave. 32 In the matter of Hawden Property Group Pty Ltd (in liq) (ACN 003 528 345) [2018] NSWSC 481; (2018) 125 ACSR 355 (Hawden) at [57], Gleeson J stated: [57] The phrase "special leave" only requires that an application be made to the Court, rather than the matter being dealt with as part of some other administrative process: Maertin v Klaus Maertin Pty Ltd (in liq) (2009) 232 FLR 239; [2009] NSWSC 618 at [40]-[41] (Austin J) citing Re DS Millard & Son Pty Ltd (1997) 24 ACSR 71 (Young J); Re RH Trevan at [6]. The purpose of the provision is to ensure that there is, in reality, a surplus, in that creditors' claims have been recognised and met in full, and that the correct relativities among the contributories have been observed: CGU Workers Compensation (NSW) Ltd v Ascom Service Automation (Australia) Pty Ltd [2005] NSWSC 747 at [4] (Barrett J). 33 See also Warner (liquidator), in the matter of Sakr Bros Pty Ltd (in liq) [2019] FCA 547 at [23]. 34 Rule 7.9 of the Federal Court (Corporations) Rules 2000 (Rules) sets out requirements in connection with an application for distribution of a surplus with special leave of the Court. The liquidator's 10 February 2020 satisfied the requirements of r 7.9(1). 35 I dispensed with the requirement for compliance with r 7.9(2), accepting that there is no real prospect of any other creditors and where the members have given irrevocable authorities for the distribution of the surplus to Mr Scott: cf. Warner at [25]; Hawden at [60]. 36 The requirement that special leave be obtained under s 488 is to ensure that there is in reality a surplus and that all creditors' claims have been recognised and met in full: In the matter of Global Alliance Corporation Pty Ltd [2020] NSWSC 119 (Global Alliance) at [11]. 37 In the absence of any known unpaid creditor and, on the basis of the irrevocable authorities, I granted special leave to the liquidator to distribute the whole of the surplus funds of the company to Mr Scott. 38 Regulation 5.6.71(1) of the Corporations Regulations provides that an order in a winding up by the Court authorising the liquidator to distribute any surplus to a person entitled to it must, unless the Court otherwise directs, have annexed to it a schedule in accordance with Form 551. Form 551 contains a table entitled "Schedule of contributories or other persons to whom a distribution of surplus is to be paid". I accepted that no useful purpose would be served by a Form 551 in this case, where the whole surplus was to be distributed to Mr Scott: cf. In the matter of Trussted Frames and Trusses Pty Ltd [2012] NSWSC 787 at [12]; In the matter of Glengrant Civil Pty Ltd (in liq) [2017] NSWSC 843 at [67]; Hawden at [63]. Accordingly, I made an order dispensing with the requirement for the schedule stipulated by reg 5.6.71(1).

Release of liquidator and deregistration 39 Section 480 of the Corporations Act 2001 (Cth) provides relevantly: When the liquidator: (a) has realised all the property of the company or so much of that property as can in his or her opinion be realised without needlessly protracting the winding up, and has distributed a final dividend (if any) to the creditors and adjusted the rights of the contributories among themselves and made a final return (if any) to the contributories; … he or she may apply to the Court: … (d) for an order that he or she be released and that ASIC deregister the company. 40 I was satisfied that the liquidator has realised all the property of the company, has distributed a dividend to the sole creditor who proved in the liquidation and now proposed to make a final payment to Mr Scott, in lieu of a return to the contributories and in accordance with their irrevocable authorities. 41 Rule 7.5 of the Rules applies to an application by the liquidator of a company for an order that the liquidator be released and that ASIC deregister the company. 42 I accepted that the requirements of r 7.5 apart from r 7.5(6) were satisfied. 43 Rule 7.5(6) provides: (6) Unless the Court otherwise orders, the liquidator must serve by prepaid post, on each creditor who has proved a debt in the course of the winding up, and on each contributory, a copy of the interlocutory process accompanied by: (a) a copy of the summary of the liquidator's receipts and payments in winding up the company; and (b) a copy of the statement of the financial position of the company at the date when the interlocutory process seeking release was filed. 44 The liquidator sought dispensation from this requirement where there was only a single creditor that proved in the winding up, and that creditor has been paid in full, and in the light of the Ciceks' irrevocable authorities. On those bases, I dispensed with the requirements of r 7.5(6). 45 Following the approach of Emmett AJA in Global Alliance, I made an order that the liquidator be released as liquidator of the company and that ASIC deregister the company pursuant to s 480(d) of the Act, 60 days after the making of the order.

Remuneration, costs and expenses 46 On the basis of the liquidator's evidence, I approved the additional remuneration in the amount of $15,063 and a further amount of $5,000 for future remuneration to the conclusion of the liquidation. I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson.