It is only in respect of 677 Boronia Road Pty Ltd, a property company, that it is stipulated that "facilities [are] to be repaid from sale of the projects in course".
5. RINGRONG'S LIABILITY FOR DEBTS INCURRED BY HERMAS
The Bank further contends that if there had been an arrangement between the Bank and the Samuel Group property companies to the effect contended for by Ringrong, that arrangement cannot have legal operation in relation to the loan to Hermas. Hermas no longer has the land at 28 Maroondah Highway as a result of separate Supreme Court proceedings between the parties as to the contract of sale and the Bank argues that it cannot be required to wait for the sale of land
in which no member of the Samuel Group any longer has an interest.
In his affidavit of 6 November 1992, Mr Samuel denies that Hermas is indebted for the amount claimed or at all. He further deposes that no statement had been received from the Bank since July 1991, and that neither he nor Hermas ever received proper accounting from the Bank as to how the amount claimed had been calculated.
In his affidavit sworn 6 October 1991 in support of the Bank's motion filed 7 October 1992, Mr Walton deposes that Hermas owed the Bank $1,389,498.68 as at 12 August 1992. Mr Samuel acknowledged in his affidavit of 12 October 1992 that Hermas had borrowed from the Bank "the majority" of the deposit of $1 million on the purchase of the property at 28 Maroondah Highway under the contract of sale from Zagame dated 25 July 1989.
However, he asserted in his next affidavit sworn 15 October 1992 that it was not until a few days before Hermas entered into that contract, and well after 6 June 1989 when the cross deed was executed, that the Bank was advised of the proposed purchase.
The liability of Hermas to the Bank was the subject of a separate, specific proposal by Pitcher Partners in their letter to the Bank of 16 April 1992 from which extracts related to other companies in the Samuel Group have been set out earlier in these reasons. Pitcher Partners' proposal in respect of Hermas was:
"Hermas Pty Ltd
This property is located at 28 Maroondah Highway, Ringwood and is the property in which the Workout Ringwood Gym is located. There are other tenants in this property.
The current debt to ANZ is $1,060,000, with the projected debt at 31/12/1992 (refer cash flow 12) being $907,000. The reduction arises from the net rents received from this property.
However, you will be aware that the bank's advance was to pay the initial "deposit" on this building and there is still $4 million owing to the vendor. The repayment of this $4 million is overdue and there is litigation between the vendor and the Samuel interests.
Because of the litigation with the vendor in relation to the unpaid purchase consideration, there is complete uncertainty in relation to any ongoing tenure for the Workout Gym.
Proposals in relation to this Hermas property are as follows, namely:
1 The bank to retain all net rentals and any cash that can be salvaged out of the litigation with the vendor. There is also a suggestion of professional negligence from former legal advisors.
2 The Samuels have personally guaranteed the vendor in this matter. In the event that the Samuels have to seek protection under Part X of the Bankruptcy Act, the bank's agreement to support the Samuels in any such proposal is requested. The benefit to the bank of this support would be to maintain these overall proposals in place."
The Bank argues that, whatever be the correct analysis of Ringrong's liability as guarantor of the debts of other companies in the Samuel Group, the inference is irresistible that Hermas has at all times been indebted to the Bank for an amount in excess of, or close to $1 million. Moreover, the evidence discloses that the litigation between the vendor, Zagame, of the property at 28 Maroondah Highway Ringwood, and Hermas as purchaser was settled on terms that the contract be rescinded. It is from this premise that the Bank contends that as Hermas no longer had any interest in the subject land, any agreement under which the Bank would stand out of its money until the development and sale of the property had been completed, has long since ceased to avail Hermas, and, through it, Ringrong.
6. DOES THE BANK HAVE STANDING TO APPLY FOR WINDING UP OF RINGRONG?
In the light of the history and the competing contentions which have been canvassed above, two questions have to be answered in order to determine whether an order should be made that Ringrong be wound up. The first is whether the Bank has standing to make the application as a creditor of Ringrong.
Since this application was filed on 17 September 1992, that is before the coming into force of various provisions of Act No 210 of 1992 (the Corporate Law Reform Act 1992), s 1383 of the Corporations Law has the effect that Part 5.4 of the Corporations Law as in force before 23 June 1993 as part of the "old winding up law" continues to apply for the purpose of determining this application. Section 462 of the old winding up law provides, so far as is relevant:
"(2) Subject to this section, any one or more of the following may apply for an order to wind up a company on a ground provided for by subsection 460(1) or section 461:
(a) the company;
(b) a creditor (including a contingent or prospective creditor) of the company;
(c) a contributory;
(d) the liquidator of the company;
(e) the Commission pursuant to section 464 or 453;
(f) an official manager of the company appointed under Part 5.3;
(g) a person (other than the Commission) who has been granted leave under section 453; or
(h) the Insurance and Superannuation Commissioner appointed under the Insurance and Superannuation Commissioner Act 1987.
...
(4) The Court shall not hear an application by a person being, or persons including, a contingent or prospective creditor of a company for an order to wind up the company unless and until:
(a) such security for costs has been given as the Court thinks reasonable; and
(b) a prima facie case for winding up the company has been established to the Court's satisfaction.
(5) Except as permitted by this section, a person is not entitled to apply for an order to wind up a company."
If the Bank has a valid right to enforce the cross deed of covenant against Ringrong it is at least a contingent or prospective creditor and so within s 462(2)(b). The basis on which Ringrong claims not to be liable on the cross deed is that its execution of that document was solely in consideration of the provision to it of an overdraft facility up to a limit of $75,000 which was never made available. To make out that contention Ringrong has to persuade the court first that consideration was not imported by its execution of the cross deed as an agreement under seal. To that end Counsel referred to the proposition in Halsbury 4th Edn Vol 12 p 506 that certain documents, although sealed, are not deeds including "an agreement signed by directors and sealed with the company's seal". In support of that proposition Halsbury cites Solvency Mutual Guarantee Co v Froane (1861) 7 H & N 5. It is by no means clear from a reading of that authority, at least in the version preserved in the English Reports (158 ER 369), that it supports the proposition for which it is cited by Halsbury. It is not cited for that or any other proposition by Norton on Deeds 2nd Edn (1928). However even accepting the proposition in the terms formulated by Halsbury, I am not persuaded that it applies to the present cross deed of covenant which is referred to throughout its text as "this Deed of Covenant" and which is not signed by Mr and Mrs Samuel on behalf of 901 Whitehorse Road Pty Ltd as Ringrong was then known. Their signatures appear only as those of the director and secretary in whose presence the common seal of the company was affixed in accordance with its articles. Furthermore, the deed was executed twice by 901 Whitehorse Road Pty Ltd, once apparently by way of binding itself in its own right. Secondly as recited in the attestation clause it was "EXECUTED by 901 Whitehorse Road Pty Ltd in its capacity as trustee of the 902 Whitehorse Road Property Investment Trust". That second execution was apparently in compliance with a clause in the "parent" cross deed of covenant dated 10 May 1988 which corresponded with cl 24 of the cross deed of 6 June 1989 which is in these terms:
"That if any further or additional trusts are created for Michael Samuel or Edna Samuel or for any Customer or for any child, spouse, grandchild, lineal descendants or remoter issue of the said Michael Samuel or Edna Samuel or if a trust is created under which any of the Customers hereto have or may be entitled to a beneficial interest thereunder then the Bank may require that the trustee of any of the aforesaid trusts execute and give to the Bank a Deed of Covenant in the form or to the effect of this Deed of Covenant in respect of the indebtedness to the Bank of each of the Customers and also in respect of the indebtedness to the Bank of such trustee and upon execution of such Deed of Covenant such trustee shall for the purposes of this Deed of Covenant be deemed to be a Customer and the provisions of this Deed of Covenant shall extend and apply to the indebtedness of such trustee to the Bank in like manner in all respects as if the name and address of such trustee and particulars of the relevant trust or trusts had been set forth in the Schedule hereto as one of the Customers."
The indications to which I have referred suffice to show that the cross deed of covenant was intended to be finally executed by Ringrong as its deed. As well, the deed or a counterpart was apparently delivered to the Bank. No particular technical form of words or acts was necessary to render the instrument the deed of the party which had executed: Macedo v Stroud [1922] 2 AC 330 at 337 citing Blackburn J in Xenos v Wickham LR 2 HL 296 at 312. For these reasons I am satisfied that Ringrong is bound by the cross deed of covenant even if no consideration passed from the Bank to it to support the agreement embodied in the deed.
Even had I not been compelled to the conclusion just expressed, I would have held Ringrong to be bound by the cross deed because I consider that the Bank provided adequate consideration for the obligation thereby undertaken. That consideration was identified in the prefatory paragraph to the cross deed in these terms:
"IN CONSIDERATION of all or any loans advances credits or banking accommodation whether made created or given on the signing hereof or that may hereafter be made created or given in its discretion by AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED (hereinafter called "the Bank") to for or on account or at the request of all or any one or more of the persons companies partnerships and firms whose names and addresses are set forth in the Schedule hereto on private joint or partnership account whether by allowing them or any one or more of them to overdraw any account or accounts or by paying or discounting Bills of Exchange or Promissory Notes or by any other means whatsoever and/or of forbearance on the part of the Bank to immediately demand and sue for payment of any moneys now owing to the Bank by all or any one or more of the said persons companies partnerships and firms each of the undersigned (hereinafter called "the Covenantor") DOTH HEREBY severely and as a separate and independent agreement binding the Covenantor AGREE with the Bank in manner following that is to say ...."
Clearly loans or further advances were made to other "customers" in the Samuel Group after the execution of the cross deed as contemplated in that recital. Nor were all of those loans or further advances made to companies in the property group which, it has been contended, were the beneficiaries of the Bank's alleged agreement, discussed below, to capitalize interest, defer repayments and make further advances until the relevant property had been sold. At least Advanced Concrete Technology Pty Ltd and Fifteen Thornton Crescent Pty Ltd from the business group were provided with further loans or extensions of existing loans after 6 June 1989.
Moreover, the suggestion that Ringrong's being bound to the cross deed was only in consideration of financial accommodation to Ringrong itself is contradicted by the fact that the cross deed of 6 June 1989 was also executed by Samuel Engineering (Vic) Pty Ltd notwithstanding that the same company in its capacity as trustee of the Michael Samuel Family Business Trust was already named as a customer in the First Part of the Schedule to the cross deed.
In any event, consideration did move not only from the Bank to third parties at Ringrong's request, but directly to Ringrong itself. That consideration was in the form of the Bank's promise made in or shortly before March 1989 to provide an overdraft to 901 Whitehorse Road Pty Ltd, as Ringrong was then known. On the view which I take it is immaterial whether the Bank ever fulfilled that promise or whether it was conditional on 901 Whitehorse Road Pty Ltd's assuming the liability to the Bank of Mitcham Leisure Pty Ltd. The Bank's promise was either conditionally or unconditionally enforceable upon execution of the cross deed and if Ringrong had become entitled to, but not been provided with, the overdraft facility, it would have had an action in damages against the Bank.
It is not necessary, in the light of the view just expressed, to reach a conclusion on whether the promised overdraft was to eliminate the Mitcham Leisure liability or was to increase Ringrong's indebtedness to the Bank above and beyond the amount of the liability of Mitcham Leisure which was to be assumed. However, on balance I am persuaded that the provision of the facility to Ringrong was conditional on the extinguishment of Mitcham Leisure's debt to the Bank. On the transfer of the gymnasium business, Mitcham Leisure Pty Ltd became, as I apprehend, a mere "shell", so it was essential for the Bank to have its liability of about $75,000 extinguished or taken over by another member of the group with some prospects of repaying the debt. There was nothing to suggest that the gymnasium business would generate a significantly greater cash flow under Ringrong's ownership than it had when conducted by Mitcham Leisure. I therefore consider it more likely than not that the Bank required the Mitcham Leisure overdraft, which had apparently been provided to meet the operating expenses of the gymnasium, to be extinguished before making available a further accommodation to meet ongoing expenses of the same kind. This conclusion is consistent with the Bank's diary note of 10 August 1989. Nor is it contradicted by the later diary notes of 17 October 1989. The effect of those diary notes is that the liability of Mitcham Leisure which, to that point was being progressively repaid by distributions from Ringrong, was to be immediately extinguished by conversion to a fully drawn loan account in the name of "Workout Ringwood". That fully drawn account in turn was to be repaid over three years after which "Workout Ringwood" would be entitled to an overdraft facility similar to that previously enjoyed by Mitcham Leisure.
This analysis of the arrangement is supported by the acceptance by Mr Samuel under cross-examination that the amount of the proposed additional overdraft to Ringrong was also to be $75,000. If the analysis which I favour is rejected, there is no explanation in the evidence for the coincidence in amount between the existing overdraft of Mitcham Leisure and the proposed additional facility for Ringrong.
For these reasons, I conclude that at the date of its application to this court, the Bank was at least a contingent creditor of Ringrong. In all the circumstances of the case, including those discussed below, in the event that s 462(4) of the old winding up law applies because the Bank was then a creditor only because Ringrong's was a contingent or prospective debt, it is a proper exercise of the court's discretion to dispense with the provision by the Bank of security for costs and to proceed with the hearing of the application.