Storm Financial Limited (Receivers and Managers Appointed) (In Liquidation) v Victorian Families Retirement & Investment Group Pty Ltd

REASONS FOR JUDGMENT 1 Storm Financial Limited (Receivers and Managers Appointed) (In Liquidation) (hereafter Storm Financial) has, on the initiative of its present liquidators, previously the administrators of that company, made application for the winding-up of Victorian Families Retirement and Investment Group Pty Ltd (Provisional Liquidators Appointed) (hereafter Victorian Families). The ground upon which the winding-up of Victorian Families is sought is that set out in s 461(1)(k) of the Corporations Act 2001 (Cth) (the Act), namely that the court is of the opinion that it is just and equitable that the company be wound up. 2 On 18 March 2009, for reasons which I then gave, I appointed Messrs Worrell and Khatri as provisional liquidators of Victorian Families. It is proposed that these same gentlemen become the liquidators of Victorian Families, empowered to act jointly and severally in that capacity. 3 Victorian Families is a wholly owned subsidiary of Storm Financial. The effect of that is that Storm Financial is a contributory of Victorian Families. In turn, that means that Storm Financial has standing to apply for the winding-up of Victorian Families in its capacity as a contributory pursuant to s 462(2)(c) of the Act. 4 I am satisfied, having regard to the affidavit evidence read today, that what one might term the procedural aspects of the winding-up application, either as set out in the Act or in the Federal Court (Corporations) Rules 2000, have either been complied with or, if only out of an abundance of caution, should be deemed to have been complied with. 5 I sound the latter cautionary note because as is frankly stated in submissions made on behalf of Storm Financial, Storm Financial has not served Victorian Families with any material. The reason for that is that the registered office of Victorian Families is the former principal place of business of Storm Financial. Further, Storm Financial has been under the control, at all material times, of Messrs Worrell and Khatri either as administrators or more latterly as liquidators. In the same fashion, Victorian Families has been under the control of those gentlemen as provisional liquidators. There is then an element of putting form over substance to require service of the material in those circumstances. I am quite satisfied that the proceedings and all material relied upon in those proceedings have been drawn to the attention of Victorian Families as defendant. 6 Storm Financial has taken the course of serving the receivers and managers appointed to it with all material relied on in the winding-up application. That is a prudent course to have taken. The shareholding of Storm Financial in Victorian Families is one of the assets subject to the charge which led to the appointment of the receivers and managers to Storm Financial. Those receivers and managers have, I note, appeared today. Their stance is not to oppose the making of a winding-up order in respect of Victorian Families. 7 In the matter of Storm Financial Limited (Receivers and Managers Appointed) (Administrators Appointed); Australian Securities and Investments Commission v Storm Financial Limited (Receivers and Managers Appointed) (Administrators Appointed) [2009] FCA 269 at [65], I canvassed both learned academic authority as well as judicial decisions relating to the history and nature of the jurisdiction to wind up a company on the just and equitable ground. I shall not repeat what I there stated. It suffices to note that the just and equitable ground is one which provides for a very broad basis indeed upon which a company may be wound up. Further, it is neither necessary nor desirable to seek to place limits on language which Parliament has made deliberately broad in its purview. 8 That said, Parliament has chosen, in a case where a winding up application is made by a contributory, to specify, in s 467(4), some relevant considerations. That subsection is in these terms: Where the application is made by members as contributories on the ground that it is just and equitable that the company should be wound up or that the directors have acted in a manner that appears to be unfair or unjust to other members, the court, if it is of the opinion that: (a) the applicants are entitled to relief either by winding up the company or by some other means; and (b) in the absence of any other remedy it would be just and equitable that the company should be wound up; must make a winding up order unless it also of the opinion that some other remedy is available to the applicants and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy. 9 The salient facts are these: 1. Victorian Families remains in the position of being without any directors. Further, there are no persons who are willing to act as directors. But for the appointment of the provisional liquidators, Victorian Families would, in all likelihood, remain what one might describe as "a rudderless ship." Victorian Families is not trading. Indeed, having regard to the absence of any disposition prior to the appointment of the provisional liquidators to fill the vacancy in the office of director and, further, having regard to the placement of the parent company into administration and, more latterly, into liquidation, there is a compelling inference that those who ultimately controlled Victorian Families prior to the appointment of external administration made a conscious decision to abandon its business and the management of that company. 2. Victorian Families is in the following present financial position. It has: (a) unpaid trade creditors of between $5000 and $10,000; (b) outstanding liabilities to the Commonwealth in respect of taxation debts of $65,255.65; (c) outstanding superannuation liabilities in respect of employees of $3135, and other employee entitlement liabilities of $11,400; (d) assets comprising: (i) a bank account balance in credit to the extent of $370,000 and an indebtedness owed by Storm Financial to it of $169,187.28. 3. Additionally, Victorian Families is presently subject to the contingency of claims in respect of margin loan losses by former clients. In some instances that contingency has become manifest; in others, claims are anticipated. One client has made a claim for $69,053 in relation to up-front fees paid to Victorian Families. The provisional liquidator's assessment is that more such claims are likely. 4. In addition, Victorian Families has received notice of impending professional disciplinary proceedings. 10 I am satisfied that there is no other remedy available to Storm Financial principally, for example, by way of a members' voluntary winding up. 11 I note that the provisional liquidators have consented to being appointed as the liquidators of the company. It will be necessary to make some further observations in relation to their appointment shortly. 12 On the facts that I have related, I am of the opinion that it is just and equitable that Victorian Families be wound up. The factors which, in my opinion, tell in favour of the winding up of this company are already evident from the recitation of facts. In other words, the company is what I have described as rudderless, and there is no prospect of that situation being remedied; its business has been abandoned; there are creditors who have made claims; and there are many creditors, or at least those who will allege themselves to be creditors, in prospect. In all in that regard, the provisional liquidator's estimate is that claims against Victorian Families, at least on present materials, may exceed some $2 million. 13 The receivers and managers have an interest in the shareholding of Storm Financial in Victorian Families. It is desirable that the worth, if any, of that shareholding, having regard to claims made against Victorian Families, be properly ascertained. It is further desirable that those who make claims against Victorian Families have persons with whom they can deal. 14 In all of these circumstances, it seems to me that it is just and equitable that the company be wound up. In voicing that opinion, I do not act on the basis that the company is shown to be insolvent. That is not the case on present materials, although it must be said that there is a likelihood of that in the future. I also bear in mind that likelihood in reaching the opinion that it is just and equitable for the company to be wound up. 15 It remains, then, to consider whether Messrs Worrell and Khatri ought to be appointed as liquidators? They have, frankly, by their legal representative, drawn attention to a potential source of conflict of interest. That is in respect of the status, and more particularly, the liability recorded in the loan account, as between Storm Financial and Victorian Families. They voice the opinion that no conflict will arise, in fact, for these reasons: (a) the receivers and managers of Storm Financial have, and will continue to retain, control of Storm Financial's loan account; and (b) the balance of the loan account is certain and not subject to any doubt or dispute. 16 I note that those particular facts are not in any way challenged by, or on behalf of, the receivers and managers. 17 There are advantages in Messrs Worrell and Khatri taking up the appointment of liquidators. They are these: (a) as the liquidators, and, previously, the administrators of Storm Financial, they have become intimately familiar with Storm Financial's business model, which was a model very similar, if not identical, to that used by Victorian Families prior to its ceasing to trade. (b) they expect that largest recoveries are likely to be received by professional indemnity insurers, and Storm Financial and Victorian Families have the same professional indemnity insurers, and were likely covered by the same policies. (c) there are cost savings to be had in the same administrators being appointed both in respect of Storm Financial and Victorian Families. 18 I note that in Re Narla Prospecting Proprietary Limited; Dallhold Investments Proprietary Limited v Narla Prospecting Proprietary Limited (1992) 10 ACLC 1310, French J, when a member of this Court, in deciding at the behest of a holding company to wind up a subsidiary, appointed as liquidator of the subsidiary the person who was the liquidator of the holding company. That also was a case where his Honour concluded that the company should be wound up on the just and equitable ground. 19 I also bear in mind that Messrs Worrell and Khatri are well-experienced liquidators. I confidently expect that in the event that such potential, and I consider it remote, as there is for conflict of interest does arise, that that will be the subject of application in short order to the Court by them. I am satisfied that it is appropriate that they be appointed as liquidators of Victorian Families. 20 My attention has been drawn to an interesting and, perhaps, inconsistent position in the Act in respect of circumstances where more than one liquidator is appointed. Section 473(8) provides: If more than one liquidator is appointed by the court, the court must declare whether anything that is required or authorised by this Act be done by the liquidator is to be done by all or any one or more of the persons appointed. 21 The more latterly amended s 530 of the Act is in these terms: If 2 or more persons have been appointed as liquidators of a company: (a) a function or power of a liquidator of the company may be performed or exercised by any one of them, or by any 2 or more of them together, except so far as the order or resolution appointing them otherwise provides; and (b) a reference in this Act to a liquidator, or to the liquidator, of a company is, in the case of the first-mentioned company, a reference to whichever one or more of those liquidators the case requires. 22 Perhaps there is a need, having regard to the present wording of s 530, for some harmonisation with that section by amendment of s 473(8). In any event, and again if only out of an abundance of caution, particularly having regard to Parliament's use of the imperative word "must" in s 473(8), I declare that anything that is required or authorised by the Act to be done by the liquidator is to be done by all or any one or more of Messrs Worrell and Khatri. 23 The orders then that I make, apart from that declaration and the formal appointment of them, are for the winding up of the company and on the just and equitable ground. 24 I will make an order that the Applicant's costs be costs in the winding up, and I will direct that the applicant bring in short minutes to reflect the orders made today. I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan.