Mr Louttit be removed as liquidator of Coal Contractors Pty Ltd (in liq) (Coal Contractors).
Mr Johnson and Mr Hayes of Wexted Advisors be appointed as liquidators of Coal Contractors.
Starbelle's costs of and incidental to its application be costs and expenses in the liquidation of Coal Contractors and paid out of the assets of Coal Contractors.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
Delivered ex tempore, revised from transcript
JACKMAN J:
By originating process filed on 5 September 2024, Starbelle Energy Pty Ltd (Starbelle) as trustee for the Cronulla Coal Unit Trust seeks orders to remove Mr Jamieson Louttit as liquidator of Coal Contractors Pty Limited (in liq) (Coal Contractors).
Mr Louttit was appointed liquidator of Coal Contractors on 13 May 2024. At that time, Mr Williams was the sole director and secretary of Coal Contractors. Its sole shareholder was Calais Investments Australia Pty Ltd (Calais Investments). Mr Williams is the sole director and shareholder of Calais Investments.
Mr Louttit's appointment occurred pursuant to a meeting of members of Coal Contractors, which Mr Williams chaired and at which no other person was present. The minutes record the making of a resolution that Coal Contractors be wound up, that Mr Louttit be appointed as its liquidator, and that Mr Louttit's remuneration be limited to $100,000.
In the report on company activities and property which Mr Williams prepared on 14 May 2024, all that is recorded is that the company has bank accounts and that it is owed money. No further particulars were provided. Mr Williams also provided a summary of affairs of a company in respect of Coal Contractors on 13 May 2024 which recorded that the total assets of Coal Contractors were "nil" under all categories of assets (including "cash at bank") and that liabilities in all categories were "unknown". Four creditors were listed (not including Starbelle) and the amount owed to them was in each case stated as "unknown".
Mr Louttit's appointment occurred in the context of Starbelle commencing on 8 March 2024 proceedings in this Court against Coal Contractors, Mr Williams, Mr Madsen, Apres Vous Pty Ltd (Apres Vous) and Apres Vous II Pty Ltd (Apres Vous II) (the Share Claim). The statement of claim filed in the proceedings on 9 May 2024 alleged that:
Mr Williams was the director of New Wilkie Energy Pty Ltd (NWE) from 7 July 2021 to 16 December 2023, New Emerald Energy (NEE) from 21 May 2015 to the date of the pleading, and Corvus Coal Pty Ltd (Corvus Coal) from 14 September 2016 to 16 December 2023;
Starbelle engaged Mr Madsen to cause Apres Vous to sell to Starbelle shares in NWE, NEE and Corvus Coal that Apres Vous would acquire from Coal Contractors at a total price of $15,798,594;
Mr Madsen, Apres Vous, Mr Williams and Coal Contractors represented that they had validly issued shares in NWE and NEE which were not voidable, and that representation was allegedly misleading or deceptive;
Mr Madsen and Apres Vous represented that they had paid $4,608,813 for 31 NWE shares and $9,653,519 for 7453 NEE shares, and that representation was allegedly misleading or deceptive;
Starbelle paid Coal Contractors $15,798,594 (Mr Madsen, Apres Vous, Apres Vous II and Mr Williams admit in their defences that Coal Contractors received that sum of money);
Mr Madsen failed to cause Apres Vous to sell two Starbelle shares that Apres Vous acquired from Coal Contractors that were lawfully issued and indefeasible and generated a profit, commission or premium in doing so (including allegedly in breach of his fiduciary duty);
Coal Contractors was a knowing recipient in connection with Mr Madsen's breach of fiduciary duty in the amount of $15,798,593;
Coal Contractors engaged in misleading or deceptive conduct or was an accessory to it; and
Mr Williams engaged in misleading or deceptive conduct or was an accessory to it.
On 14 May 2024, the day after Coal Contractors went into liquidation, a "change to company details" form in respect of NEE was lodged with ASIC, indicating that Coal Contractors' shareholdings in NEE decreased by 7,613, those shares being allotted in favour of Calais Investments.
On 21 June 2024, Starbelle's solicitors wrote to the solicitor for Mr Williams and Calais Investments, Mr de Mestre, setting out concerns relating to that matter. In response, on 27 June 2024, Mr de Mestre advised that NEE "was placed into administration yesterday". Mr Bergamin deposes to there being a question as to whether the transfer of NEE shares from Coal Contractors is voidable or invalid, noting that the transfer of them is not referred to in the statutory report to creditors of Mr Louttit. In his evidence, Mr Williams has not sought to provide an explanation in respect of that transaction.
On 16 May 2024, Mr Louttit wrote to Starbelle's solicitors indicating that he had been appointed the liquidator of Coal Contractors and provided a copy of a blank proof of debt. Mr Louttit also wrote to Starbelle's solicitors the next day, and wrote that he understood that Starbelle was pursuing litigation against Coal Contractors, and that Starbelle will rank as an unsecured creditor and will be restricted from proceedings against the company.
On 5 June 2024, Starbelle's solicitors responded to Mr Louttit's letter of 16 May 2024, questioning the list of creditors of Coal Contractors, seeking a copy of Mr Louttit's declaration of independent relevant relationships and indemnities (DIRRI), seeking information about whether he had been provided with an indemnity or had funding available, and providing full details of the Share Claim. Starbelle's solicitors followed up on a response to the letter on 13 June 2024, 18 June 2024 and 20 June 2024. A response was received through Mr Louttit's solicitors on 2 July 2024, with the delay said to have occurred because the follow ups were "caught in spam folder".
In the meantime, on 17 June 2024, Mr Louttit lodged two Form 5022s with ASIC. The first was an "outcome of proposal to creditors or contributories with a meeting", and the second was an "outcome of proposal to creditors or contributories without a meeting".
In the former document, Mr Louttit indicated proposals to pass resolutions (among others) to fix his remuneration in the amount of $100,000 and to approve his entry into an agreement pursuant to s 477(2B) of the Corporations Act 2001 (Cth) (the Act) to obtain tax and legal advice. He also stated within the DIRRI enclosed therein that he had not been indemnified in relation to the administration, other than any indemnities to which he may be entitled under statute and the letter of engagement, and advised that Mr Williams had personally promised contribution to costs in the amount of $100,000 towards Mr Louttit's fees and expenses. The DIRRI was also enclosed within the second document and repeated those statements.
On 21 June 2024, Mr Louttit lodged a Form 5601 "statutory report by liquidator to creditors" with ASIC. Mr Louttit stated in the report that "cash at bank" was $296.72. All other categories of asset was stated to be nil, save for Debtors and Other Assets, which were stated to be "unknown" amounts.
Similarly, liabilities were in all categories stated to be nil, save for the case of two partly secured creditors, to whom it was "unknown" how much was owed. Further, the amount owed to the ATO was stated to be "unknown", and the total amount owed to unsecured creditors was stated to be $61,548.50. In the report, Mr Louttit stated under the heading "Reasons for the Company's Failure" that the director had opined that the reason for the failure of the business was "unproven litigation". Mr Louttit also advanced five reasons for which the company may have failed, the third of which was "inability to resolve litigation". In concluding his report, Mr Louttit stated that he had not conducted a detailed investigation and/or audit of the company's financial affairs.
On 1 July 2024, Starbelle's solicitors wrote to Mr Louttit, indicating that they held instructions to apply for his replacement as liquidator of Coal Contractors. Protracted correspondence ensued between Starbelle's solicitors and Mr Louttit's solicitors. In that correspondence, on 3 September 2024, Mr Louttit's solicitors stated that Mr Louttit did not consider there to be any proper reason why he cannot continue to act as liquidator of Coal Contractors, noting that in Mr Bergamin's affidavit, Starbelle stated that it will "provide one of the proposed alternative liquidators with an initial fund of $150,000 to undertake a thorough investigation into the affairs of Coal Contractors".
The letter stated that Mr Louttit currently did not have access to the type of funding proposed (from other sources) and noted that the funding proposed by Starbelle would only be provided to one of Starbelle's nominated alternative liquidators, and that it remained unclear to Mr Louttit why Starbelle was not prepared to fund him to undertake the investigations. The letter indicated that Mr Louttit did not consider that he should be advocating one way or the other, in terms of an application for his replacement, and Mr Louttit has commendably maintained that position at today's hearing.
The list of creditors enclosed stated that there were two partly secured creditors, although in amounts not specified. It specified that nine unsecured creditors (including Mr Williams) were owed a total of $73,894.60. The largest of the creditors was stated to be Finncorp Accountants, said to be owed a total of $17,600, and Mr Williams was said to be owed $10,000.
Three alternative firms of liquidators have consented to being appointed to replace Mr Louttit, namely Mr Johnson and Mr Hayes of Wexted Advisors, Mr Jahani and Ms Gibb of Grant Thornton, and Mr Scott and Mr Charlwood of PricewaterhouseCoopers. There is no identified difference in ability or experience between any of them, and Mr Johnson and Mr Hayes of Wexted Advisors have now proposed fees which are lower than the others, and lower than Mr Louttit's fees. Contrary to Mr Williams' submission, I do not regard their preparedness to renegotiate their fees as evidence of a lack of independence on their part. Following the filing of the present application, at the first return date on 20 September 2024, Mr Williams sought leave to intervene in the proceedings, which I granted. He has since filed an affidavit on 26 September 2024, and relies also on an affidavit of Mr Finney of Finncorp Accountants, which as stated above was a creditor in the amount of $17,600.
Mr Williams deposed to a funding agreement to provide Mr Louttit with $200,000 by Indian Ocean Capital Pty Ltd (Indian Ocean). There is no evidence of the ability of that corporation to be able to make good a promise to pay Mr Louttit $200,000, or its financial standing. Mr Bergamin gives evidence in response that Starbelle will match the funding proposal of $200,000, and that Starbelle has paid that sum into its solicitor's trust account.
Mr Williams also gives evidence in respect of concerns about Starbelle's proposal - that it excludes certain matters from investigation under the funding agreement, in particular, matters concerning Starbelle's previous conduct or that of its officers. Mr Louttit gives evidence also raising concerns with the exclusion of any possible investigation into Starbelle. Mr Bergamin's evidence in reply addresses that issue by propounding an amended funding deed that removes any exclusion of investigation into Starbelle and removes what had been a right of control on the part of the funder over the choice of solicitors and counsel.
Mr Williams also gives evidence that the hourly rates charged by the alternative liquidators are significantly higher than those of Mr Louttit. However, Mr Bergamin's evidence in reply provides updated rates from Mr Johnson and Mr Hayes of Wexted Advisors that are generally about 10 per cent lower than those of Mr Louttit's.
Mr Louttit's evidence is that with the benefit of funding from Indian Ocean he is now in a position to conduct investigations. He also provides evidence of the funding arrangement which has been executed. Mr Louttit otherwise, broadly, provides a chronology of relevant matters with respect to the liquidation and responses to Mr Bergamin's evidence. Mr Louttit gives evidence that it is not "immediately apparent" to him how the Share Claim gives rise to a claim against Coal Contractors, but that it is his intention to properly investigate the matter if he is not replaced. He further states that his preliminary view is that Starbelle may be a contingent creditor of Coal Contractors. As to funding, Mr Louttit also deposes to having received $20,000 from Mr Williams on 24 May 2024 and a further $20,000 on 16 September 2024.
Starbelle's application is made under s 90-15 of the Insolvency Practice Schedule (Corporations) (IPS), being sch 2 to the Act, for the removal of Mr Louttit. Subsection 90-15(1) grants the Court plenary power with respect to an external administration, examples of which are specified under s 90-15(3) and include that a person may be removed as an external administrator of the company and another registered liquidator appointed in his or her place. Subsection 90-20(1)(a) of the IPS specifies that a person with a "financial interest" in the external administration may apply for an order under s 90-15. Subsection 5-30(a)(ii) specifies that a creditor is a person with a "financial interest in the external administration".
Section 553(1) of the Act provides that contingent debts are provable in the winding up of a company. Accordingly, Starbelle has standing to seek relief under s 90-15 of the IPS. Subsection 90-15(4) of the IPS identifies matters that the Court may take into account in an application of this nature. They include whether a liquidator has faithfully performed his or her duties, whether the liquidator has not complied with the Act or IPS, whether the liquidator has not complied with an order of the Court, whether a person is likely to suffer loss or damage because of an action or failure by the liquidator, and the seriousness of the consequences of any action or failure to act by the liquidator, including any effect on public confidence.
The relevant principles applicable to an application of this nature were recently set out in Gadsden v MacKinnon (Liquidator), in the matter of Allibi Pty Limited (in liq) [2023] FCA 647 at [74]-[86] (O'Callaghan J), and I gratefully adopt his Honour's summary of the principles.
The removal of Mr Louttit and appointment of one of the alternative liquidators is submitted by Starbelle to be for the overall benefit of, and best interests of, the liquidation of Coal Contractors, for a number of reasons. First, Starbelle submits, and I accept, that it propounds a funding proposal for a liquidator that is better than the status quo, and the other proposal which has been advanced involving Indian Ocean.
Mr Louttit was appointed on 13 May 2024 pursuant to a resolution that would have seen his remuneration capped at $100,000. He has been paid $40,000 of that amount to date. Mr Williams now proposes $200,000 through Indian Ocean. There is no evidence of the ability of that company to make good the promise to pay $200,000. In any event, Starbelle has matched that proposal, and there is no question about the security of that promise as Starbelle has paid the amount into its solicitor's trust account. By contrast, Mr Williams appears not yet to have performed his promise to Mr Louttit of providing a total of $100,000 of funding, with only $40,000 of that amount apparently having been provided.
Mr Williams refers to provisions in the initial draft of the funding agreement by Starbelle to the effect that the funding would not be used to investigate, or proceed with, any claim against the funder, Corvus Coal or Starbelle, or any of their officers, and that Starbelle had the right to control the choice of solicitors and counsel. Those provisions have now been removed, and, contrary to Mr Williams' submission, I do not think that there is a realistic prospect of them being reintroduced.
Second, Starbelle submits, and I accept, that the circumstances of Mr Williams' funding proposal give rise to two particular concerns. The first is that Mr Williams proposes $200,000 to fund Mr Louttit as liquidator, but Mr Louttit's own position is that the creditors, whom he has been able to identify to date, are valued at $73,894.60 in unsecured debts owed by Coal Contractors. The second is that Mr Williams' proposal only came after, and in direct response to, Starbelle's application to remove Mr Louttit. That gives rise to a question, which I do not regard as having been satisfactorily answered by Mr Williams, as to why Mr Williams did not proffer such a funding arrangement prior to Starbelle's application.
Third, Starbelle submits, and I accept, that there can be no suggestion that Starbelle has brought this application as a means of simply propounding a liquidator who might serve its own interests. That is apparent by reason of Starbelle's presentation of three different alternative liquidators, and Starbelle's indifference as to which of the three might be appointed.
As I have indicated, Mr Johnson and Mr Hayes have agreed to renegotiate their rates, such that they will be 10 per cent less than Mr Louttit's rate. I would not have regarded that as a reason in itself for removing Mr Louttit and replacing him with Mr Johnson and Mr Hayes, although it is a factor which I take into account, particularly in deciding which of the three proposed alternative liquidators is the most appropriate to be appointed.
Fourth, Starbelle has lost confidence in Mr Louttit. Starbelle says this is because, in circumstances in which Starbelle's claim against Coal Contractors exceeds $15 million, Mr Louttit's apparent lack of investigation is of concern to it. Despite Coal Contractors' shareholdings in NEE having decreased by 7613 shares in favour of Mr Williams company, Calais Investments, and documents recording that decrease having been lodged with ASIC the day after Coal Contractors went into liquidation pursuant to a resolution at a meeting where Mr Williams was the only person present, there is no evidence that Mr Louttit has investigated this matter notwithstanding that he received funding in the initial amount of $20,000 on 24 May 2024, and a further amount of $20,000 on 16 September 2024. Mr Louttit's reason given in his affidavit was a lack of funding. However, it does not appear that Mr Louttit took any steps to request payment by Mr Williams of further amounts up to $100,000 for the purpose of pursuing such investigations, the figure of 100,000 being the amount promised by Mr Williams pursuant to the resolution appointing Mr Louttit initially as liquidator. That position has now changed with Mr Louttit having procured a funding agreement for $200,000 on the part of Indian Ocean, but as I have indicated that has emerged belatedly in relation to the present application.
Fifth, Starbelle submits and I accept that Mr Williams role in the events leading to the failure of Coal Contractors is relevant to the question of what is in the best interest of creditors. It was Mr Williams who conducted the meeting of Coal Contractors to put Coal Contractors into liquidation and appoint Mr Louttit as liquidator, and who faces a claim, together with Coal Contractors, seeking payment of over $15 million in the Share Claim. Mr Williams now opposes Starbelle's application. Mr Williams has provided no explanation as to why he previously did not double the funding which he originally promised to Mr Louttit and why that additional funding has only been provided now.
Mr Williams opposes the replacement of Mr Louttit, the application for such replacement being on the basis that a fresh set of eyes can be brought to bear to the failure of Coal Contractors, and in particular Mr William's role in that failure. While I accept that Mr Williams did not have any previous association with Mr Louttit, it appears to me that Mr Williams regards Mr Louttit's continued role as liquidator as being in his personal interests.
I note that Starbelle does not submit that there is any wrongdoing by Mr Louttit. However, Starbelle submits, and I accept, that it is not necessary that any wrongdoing be established. Starbelle submits, and I accept, that the liquidation generally would benefit from a liquidator completely independent of the former director, secretary and shareholder (of the shareholder of Coal Contractors) who in fact supports the maintenance of Mr Louttit. In short, an alternative liquidator can bring fresh eyes to the issues without any difficulty arising from the adversarial relationship between the parties.
Sixth, while the benefit that the fresh eyes and alternative liquidator may bring is to be weighed against the costs for that process to occur, in the present case the liquidation is in its relative infancy with substantial potential for further work to be done, particularly in light of the limited investigation by Mr Louttit to date. Accordingly, and particularly having regard to the substantial funding Starbelle proposes to advance to a new liquidator, in my view it is appropriate that a new liquidator be appointed.
Among the proposed alternative liquidators, as I have indicated there is no identified difference in ability or experience, however there is a significant difference in the level of fees proposed to be charged. As to that, in my view the best interests of the liquidation will be served by appointing Mr Johnson and Mr Hayes of Wexted Advisors as liquidators.
Accordingly, I order that Mr Louttit be removed as liquidator of Coal Contractors and that Mr Johnson and Mr Hayes be appointed in his place. Further, all books and records of Coal Contractors in the possession of Mr Louttit should be delivered to the business address of Mr Johnson and Mr Hayes or another address nominated by them.
Starbelle also seeks an order that its costs of and incidental to its application be costs and expenses in the liquidation of Coal Contractors and paid out of the assets of Coal Contractors. I regard that order as appropriate. However, in its written submissions, Starbelle has sought an order for costs against Mr Williams in light of his opposition to Starbelle's application. I do not regard it as appropriate to order that Mr Williams pay Starbelle's costs. Starbelle had to approach the Court in order to obtain the order, irrespective of any opposition by Mr Williams. Moreover, I infer that the involvement of Mr Williams has caused improved terms to the funding agreement to be negotiated, and has also caused a renegotiation of the remuneration to be charged by the replacement liquidators. Accordingly, I regard Mr Williams' role in the proceedings as having been beneficial to the winding up as a whole.
I should also record that I have been assisted by the submissions advanced by Mr Haines on behalf of Mr Williams today.
I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Jackman.
Parties
Applicant/Plaintiff:
Starbelle Energy Pty Ltd as trustee for the Cronulla Coal Unit Trust