FILE NO COR 212 of 1999 Section 461 of the Corporations Law

DEEPINGHURST PTY LTD (ADMINISTRATOR APPOINTED) (ACN 061 329 628)

CHARLES PHILIPPE LOUIS NILANT AS ADMINISTRATOR OF DEEPINGHURST PTY LTD (ADMINISTRATOR APPOINTED) (ACN 061 329 628)

BETWEEN : DEEPINGHURST PTY LTD (ADMINISTRATOR APPOINTED) (ACN 078 112 535)

TROPICAL KIMBERLEY DIAMONDS PTY LTD (ACN 067 565 655)

Cross-vesting to Family Court - Corporations Law - Appointment of provisional liquidator to company controlled by husband and wife - Rights of third parties - No new principles

JN Taylor Finance Pty Ltd (In liquidation) v BCF (Bond Corporation Finance) Ltd (1991) 9 ACLC 819

Rural & Industries Bank of Western Australia v Larchill Corporation Ltd (1990) 1 WAR 407

1 McKECHNIE J**:** There are four applications before this Court:

1. COR 154 of 1999, an application by Steven Charles Turner to wind up Tropical Kimberley Diamonds Pty Ltd;

2. COR155 of 1999, an application by Steven Charles Turner to wind up Deepinghurst Pty Ltd;

3. COR 207 of 1999, an application by Janine Rosalie Turner to end the administration of Deepinghurst Pty Ltd, and

4. COR 212 of 1999 an application by the administrator of Deepinghurst Pty Ltd, Mr Nilant, for the appointment of a provisional liquidator.

2 In all four applications Mrs Turner has filed a summons which, as amended, seeks to have the particular application cross-vested to the Family Court of Western Australia pursuant to the Corporations (WA) Act, s 44(2). The applications are all intertwined in a way which will become apparent. It was agreed by the parties that either all four should be transferred or none should be. The argument today, however, is focused upon COR 207 of 1999 by Mrs Turner to end the administration.

3 Mr and Mrs Turner were married for nearly 10 years but separated in April 1999. Proceedings have been commenced by Mrs Turner in the Family Court seeking custody and property orders. Mr Turner is a jeweller. He and Mrs Turner purchased the companies Deepinghurst and Tropical Kimberley Diamonds in order to carry on business. As Mrs Turner deposes in her affidavit sworn 15 July 1999:

"3. My husband, Steven Charles Turner ('Stephen') and myself are the sole shareholders and directors of Deepinghurst Pty Ltd (Administrator Appointed) ('Deepinghurst'), which company is one of the vehicles through which we operate our family business under the business names 'Nina's Jewellery' and 'Djeeru Gems and Kimberley Diamonds' ('the Business').

4. Stephen and I purchased Deepinghurst as a shelf company in April 1997 for the purpose of Deepinghurst purchasing the Business, and a property used in conjunction with the Business at 559 Coolibah Drive Kununurra ('the Property') from William Robert Withers and Judith May Withers ('the Withers').

5. Stephen and I started working in the Business for the Withers in May 1992 at which time we both moved to Kununurra with our son Brent.

6. The Withers have been good friends of Stephen from the time he commenced work for them and I believe that they remain close friends of Stephen to the present time.

7. On or about 30 June 1997, Deepinghurst entered a written agreement for the sale and purchase of the Business and the Property from the Withers and for the purchase of all issued shares in Tropical Kimberley Diamonds Pty Ltd (ACN 067 565 653) ('TKD') a company which undertook the wholesale and supply side of the Business and owned all stock in relation to the Business ('the Agreement').

8. The purchase of the Business was financed to the amount of approximately $650,000 through vendor finance from the Withers, which finance is secured by a charge over the assets and undertaking of Deepinghurst ('the Charge'), and a mortgage over the Property ('the Mortgage') and personal guarantees of myself and Stephen.

9. The Charge is ranked second in priority to a charge granted by Deepinghurst in favour of the National Australia Bank to secure indebtedness to the National Australia Bank in relation to the Business in the amount of approximately $70,000."

4 The charge over the assets of Deepinghurst includes default provisions. Mr Turner's application to wind up Deepinghurst appears on its face to trigger one of those provisions. In all events, Mr and Mrs Withers, in purported exercise of their rights under the charge, have appointed Mr Nilant as administrator.

5 The circumstances surrounding the default are questioned by Mrs Turner in the application to end the administration. Put broadly, she suggests that the Withers and Mr Turner may have been acting together and in the circumstances the administration is an abuse. She asserts, through counsel, that the affairs of the company are so inextricably interwoven with the matrimonial affairs that the Family Court should be seised of all matters. She says that the Family Court is the appropriate jurisdiction to determine the future management and ownership of Deepinghurst and Tropical Kimberley Diamonds which two companies represent the substantial assets of the marriage.

6 The application is opposed by the administrator and by Mr and Mrs Withers. I consider the only matter of substance raised by the administrator in opposition to the removal is the effect of Inglis v Commonwealth Trading Bank [1972] HCA 74; (1972) 126 CLR 161. That principle is shortly stated by Barwick CJ when he says at p 169:

"The case falls fairly, in my opinion, within the general rule applicable when it is sought to restrain the exercise by a mortgagee of his rights under the mortgage instrument. Failing payment into court of the amount sworn by the mortgagee as due and owing under the mortgage, no restraint should be placed by order upon the exercise of the respondent mortgagee's rights under the mortgage."

7 As a consequence, it is argued, the application to end the administration is doomed to fail, cross-vesting therefore is a pointless exercise. I do not accept this submission. The principles in Inglis related to the grant of an interlocutory injunction in circumstances where there was no dispute as to the existence of a debt. What was asserted in that case was that any debt was more than counterbalanced by damages due to the plaintiff.

8 In the present case, Mrs Turner seeks an end to the administration. She does not seek interlocutory relief. If her arguments are correct, a matter upon which I express no opinion, the administration will end. An end to the administration will have no effect on the security held by Mr and Mrs Withers or upon the remedies under it.

9 At the time of any such order the court will necessarily determine the rights of Mr and Mrs Withers as to the administration of Deepinghurst and as to whether the notice of default did or did not trigger the power to appoint an administrator or demand payment of the principal sum.

10 Mr and Mrs Withers object to the transfer of jurisdiction to the Family Court. It is argued, on their behalf, that although the shares in Deepinghurst are the Turners' matrimonial property, they are an asset which will always be subject to the secured interests of Mr and Mrs Withers in the assets of the company. In essence, it is submitted that the issue of the administration and in consequence the future of Deepinghurst, as a corporations matter, is normally dealt with in the Supreme Court.

11 The Corporations (WA) Act confers jurisdiction in respect of several matters arising under the Corporations Law on the Family Court of Western Australia. As this is a State court, albeit one invested with Federal jurisdiction, the prohibition against cross-vesting to a pure Federal Court in contravention of the Constitution ch 3 would not seem to arise.

12 Because the Act specifically vests jurisdiction in the State Family Court, in my opinion questions of particular expertise carry little weight. The Corporations (WA) Act s44(2) provides:

"Where it appears to the court that, having regard to the interests of justice, it is more appropriate for the proceeding, or an application in the proceeding, to be determined by another court having jurisdiction in the matters for determination in the proceeding or application, the first-mentioned court may transfer the proceeding or application to that other court."

13 The inquiry of this Court therefore is directed to the appropriateness of transfer having regard to the interests of justice.

14 There are few authorities which offer guidance and no doubt for good reason. It is generally unwise to fetter such a discretion. The interests of justice will vary from case to case.

15 In Roff v Aqua Distributors Pty Ltd (1996) 14 ACLC 1769 Merkel J ordered a transfer of proceedings from the Federal Court to the Family Court in circumstances where winding up proceedings were commenced by the wife in respect of a company wholly owned by the husband and wife and the shareholding in the company were significant issues for determination in the Family Court proceedings.

16 In John Lawrence Sharpe Ex Parte Powell v Donnelly [1996] 896 FCA 1 Lindgren J ordered that a transfer of bankruptcy proceedings from the Federal to the Family Court in circumstances where the wife was the major unsecured creditor as a result of a Family Court property order. The wife was seeking, amongst other orders, an annulment of the bankruptcy.

17 In Lassock v Macks [1997] SASC 6068 Nyland J declined to transfer proceedings from the South Australian Supreme Court to the Family Court in respect of an action about the validity of a mortgage. That question was said to be a discrete question and involved a third party.

18 I have referred to these cases because counsel from one or other side cited them. However, with respect, no clear question of principle emerges from them and the matter remains to be determined as to the interests of justice.

19 In this case it is true that the state of the companies is important to Mr and Mrs Turner and therefore to the eventual property settlement between them in the Family Court. In this regard I note that the Family Court has issued an interlocutory injunction restraining the husband, Mr Turner, in the following terms that he:

(a) be restrained and an injunction be granted restraining him from winding up or taking any steps to place Deepinghurst into liquidation;

(b) be restrained from taking any steps to diminish the value of the assets of Deepinghurst or the business and

(c) sign the life insurance policy arranged in accordance with the terms of the agreement.

20 Different views are expressed as to the viability of the trading business in the changed circumstances brought about by the separation of the parties. However, it seems to me that the persons with the most substantial interest in Deepinghurst are in fact Mr and Mrs Withers. The purchase of the business by the Turners was largely financed by Mr and Mrs Withers in order to secure their retirement.

21 Mrs Turner makes allegations of collusion by the Withers with Mr Turner. Those matters, to the extent relevant, can be examined and resolved in the application to end the administration of Deepinghurst or in the application by the administrator for the appointment of a provisional liquidator. While it is not correct to label the application to end the administration as an entirely discrete matter, it is nevertheless capable of being resolved by this court without resort to any extra powers which it is claimed are possessed by the Family Court.

22 The Withers are strangers to the matrimonial proceedings except to the extent of their security over a matrimonial asset. If these proceedings are transferred to the Family Court, I consider there is a real risk that Mr and Mrs Withers will become mired in proceedings which will ventilate issues in respect of which their security by way of charge, and the rights which accrue under it, will have only peripheral relevance.

23 In my judgment, the interests of justice do not make the Family Court of Western Australia a more appropriate court to deal with the applications affecting these companies because, in my view, the interests of justice support this court exercising its jurisdiction in a summary manner. I reach that conclusion because of the likely effect of Family Court proceedings in respect of Mr and Mrs Withers. Therefore the summons for cross-vesting in each action is dismissed.