Termicide Pest Control Pty Ltd, in the matter of Granitgard Pty Ltd (in liq) v Albarran

REASONS FOR JUDGMENT 1 Some days before the members of Granitgard Pty Ltd voted to place the company in voluntary liquidation, the business of that company was transferred to a company called Granitgard Australia Pty Ltd. Mr Richard Sapsford is the sole director of both companies and he and his wife are the ultimate beneficial owners of each company. The consideration for this transfer was $19,700.00, most of which was offset ($13,837.00) by obligations of Granitgard Pty Ltd to its employees, for which Granitgard Australia Pty Ltd took responsibility. 2 The transfer agreement also provided for the assignment by Granitgard Pty Ltd to Granitgard Australia Pty Ltd of the lease over its premises at Unit 6, 12 Victoria Street, East Lidcombe, New South Wales. As well, Granitgard Australia Pty Ltd took responsibility for a debt of $823,652.00 owing under a supply agreement to a company called EB Mawsons & Sons Pty Limited. The evidence before me shows that there must have been some doubt about whether this debt was owed by Granitgard Pty Ltd because just prior to the company being placed in voluntary liquidation it obtained legal advice on that question. The supply agreement in question is described in Sch 2 to the transfer agreement as a "Supply Agreement between EB Mawsons & Sons Pty Limited, the Vendor [ie Granitgard Pty Ltd] and Richard Sapsford and Pamela Sapsford dated 30 March 2007". From this I infer that the question upon which advice was sought was whether the debt was a company debt or a personal debt of Mr and Mrs Sapsford. 3 The significance of this aspect of the transfer agreement is that this debt was the only external debt for which Granitgard Australia Pty Ltd assumed responsibility. The other debts of Granitgard Pty Ltd, totalling in excess of $1,000,000.00, remained owing by that company. 4 Termicide Pest Control Pty Ltd, the plaintiff in these proceedings, is owed $994,422.90 of this sum. This debt makes up approximately 95 per cent of the total creditors of the company. The debt relates to a costs order Termicide obtained against the company after it successfully defended proceedings brought against it by Granitgard Pty Ltd wherein it alleged Termicide had made a number of misleading or deceptive statements in breach of the Trade Practices Act 1974 (Cth) (as it then was) about the performance of its termite barrier system, "Termiglass". The trial judge observed that Granitgard and Termicide were rivals, indeed bitter rivals, in the pest control industry in south-east Queensland: see Granitgard Pty Ltd v Termicide Pest Control Pty Ltd (No 5) [2010] FCA 313 at [2]. These proceedings were finalised in June 2011 when the Full Court dismissed Granitgard's appeal against the trial judge's orders dismissing its proceedings. 5 As may be apparent from this brief description of the background, and history of, this matter, the transfer agreement described above lies at the heart of these proceedings. The brief circumstances of it set out above are sufficient to show that it is at least questionable. It smacks of an attempt by those in control of the company to avoid the consequences of its loss in the proceedings it took against its bitter rival, Termicide. 6 Richard Albarran and Brent Trevor-Alex Kijurina are the voluntary liquidators of Granitgard Pty Ltd appointed by its members on 25 October 2011. 7 Termicide is dissatisfied with their conduct of the voluntary liquidation thus far and, more specifically, their approach to the investigation of the transfer agreement described above. Accordingly, Termicide has applied under s 503 of the Corporations Act 2001 (Cth) to have them removed as the liquidators of Granitgard Pty Ltd and replaced with Messrs Martin Green and Ian Currie. 8 At the hearing of Termicide's application there was no dispute between the parties that the transfer agreement must be thoroughly investigated. The crucial question was: who should conduct that investigation, the defendants or the liquidators proposed by Termicide? 9 While the countervailing considerations in this application are finely balanced, I have ultimately concluded that the better conduct of the liquidation will be served by granting Termicide's application. My reasons for reaching that conclusion are set out hereunder. 10 The principles applying to an application of this kind are relatively well established. They were described by Merkel J in City & Suburban Pty Ltd v Smith (1998) 28 ACSR 328; [1998] FCA 822 as follows: Section 503 of the Law provides that the Court may "on cause shown" remove a liquidator and appoint another liquidator. It has long been accepted that the section and its predecessors were not confined to situations where it is established that there is personal unfitness, impropriety or breach of duty on the part of the liquidator. Cause is shown for removal whenever the Court is satisfied that it is for the better conduct of the liquidation or, put another way, it is for the general advantage of those interested in the assets of the company that a liquidator be removed: see Re Adam Eyton Ltd; Ex parte Charlesworth (1887) 36 Ch D 299 at 306; Re Mutual Live Stock Financial and Agency Co Ltd (1886) 12 VLR 777; Re George A Bond and Co Ltd (1932) 32 SR (NSW) 301 at 310; Re Giant Resources Ltd [1991] 1 QdR 107 at 115 per Ryan J; Network Exchange Pty Ltd v MIG International Communications Pty Ltd (1994) 13 ACSR 544 at 550 per Hayne J; re Biposo Pty Ltd; Condon v Rogers (1995) 17 ACSR 730 at 734 per Young J and Dallinger v Halcha Holdings Pty Ltd (in admin) (1995) 134 ALR 178 at 183-4; 18 ACSR 835; per Sundberg J. As was said by Bowen LJ in Re Adam Eyton at 306: "Of course fair play to the liquidator himself is not to be left out of sight, but the measure of due cause is the substantial and real interest of the liquidation." 11 This statement of principles has been cited with approval on numerous occasions in this Court. They include: McAuliffe v Lidia Perin Memorial Hospital Pty Ltd (2006) 58 ACSR 666; [2006] ACTSC 88 at [34]-[35] (per Weinberg J); Emerton Pty Ltd v Referral Marketing Services Pty Ltd [2009] NSWSC 738 at [17] (per Brereton J); Carter, In the matter of Bramac Investments Pty Ltd [2010] FCA 317 at [19] (per Goldberg J); and Independent Cement and Lime Pty Ltd v Brick and Block Co Ltd (in liq) (recs and mgrs apptd) (2010) 267 ALR 613; [2010] FCA 352 at [47] (per Finkelstein J). 12 In the interests of brevity I do not propose to canvass the wide-ranging submissions made by Mr Looney on behalf of Termicide. However, I should make it clear that my decision is not based upon any finding of actual or perceived bias or partiality on the part of the defendants, nor any unfitness, impropriety, or breach of duty on their part. Instead it is based on a somewhat pragmatic assessment as to which of the two groups of liquidators will be in the best position to conduct the thorough investigation of the transfer agreement that all the parties agree should be undertaken. 13 As Mr Smith, for the defendants, pointed out in submissions, the defendants have duties as liquidators under the provisions of the Corporations Act 2001 (Cth) and there is nothing to suggest that they will not discharge those duties in a proper professional manner as required by those provisions. In this respect both of the two groups of liquidators are in the same position and under the same statutory and professional obligations. 14 However, the defendants have one deficiency that Termicide's proposed liquidators do not have. That is the resources of a willing third party to fund the thorough investigation of the transfer agreement. When the defendants were appointed liquidators by the company their fees were guaranteed by Mr Sapsford to a limit of $20,000.00. Most of that sum has been expended already and the investigation of the transfer agreement has barely begun. The first letters raising specific questions about the transaction were sent on 29 November 2011. 15 During the course of the hearing before me, Mr Smith sought and obtained leave to file an affidavit by Mr Kijurina. In that affidavit Mr Kijurina deposed, among other things, to an intention to undertake an investigation of the affairs of the company including: a. compelling the director of Granitgard to attend to answer questions in relation to the Sale Transaction; b. request third party records from banks and other financial institutions and parties to the Sale Transaction; c. interview the valuer; d. submit Freedom of Information requests to the Australian Tax Office for BAS, tax returns, running balance accounts and correspondence with Granitgard including in relation to arrangements to pay by instalment. None of these steps has yet been taken. It is therefore obvious that much remains to be done in the investigation. 16 Mr Kijurina said elsewhere in the affidavit that he would "expend all necessary resources to investigate the Sale Transaction, amongst other things, and report to creditors on the results of those investigations". Given that the funding guarantee from Mr Sapsford has all but expired, this means that the defendants will have to fund these investigations out of their own resources. While this is laudable, I consider it is the factor that tips the balance in favour of the course proposed by Termicide. 17 Mr Jeynes, the director of Termicide, has confirmed in an affidavit filed in support of this application that Termicide is prepared to provide funding, or an indemnity, to the proposed liquidators "for work to be undertaken as well as costs for future work to be done once the proposed liquidators have completed their preliminary investigation into the affairs of Granitgard and provide a detailed report to the creditors". For their part Messrs Green and Currie, the proposed liquidators, have provided a consent to act as liquidators in the place of the current liquidators and confirmed that they are prepared to carry out the necessary investigations of the affairs of the company, and, in particular, the transfer agreement and report to the creditors on the outcome of those investigations. 18 With about 95 per cent of the debts owed by the company, Termicide patently has a significant incentive and self-interest in ensuring that the investigation of the affairs of the company, in particular, the transfer agreement, is conducted diligently and efficiently. This, combined with the fact that Mr Jeynes has stated on oath that he is willing to commit the funds necessary to ensure those investigations take place, in my view, is more likely to ensure the better conduct of the liquidation for the general advantage of its creditors. 19 For these reasons, I propose to make the orders sought by Termicide. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Reeves.