PERRAM J:
1 These proceedings were commenced by the administrators of Mossgreen Pty Ltd (Administrators Appointed) ('Company') seeking various directions from the Court relating to consigned goods, cash and receivables held by the Company. The part of the Originating Process relating to the consigned goods has been resolved: White, in the matter of Mossgreen Pty Ltd (Administrators Appointed) v Robertson [2018] FCAFC 63. The administrators have now been appointed liquidators of the Company. The balance of the Originating Process still needs to be resolved.
2 The Company's principal assets are $1.6 million in cash which is held in a bank account and receivables consisting of debtors to the extent of nearly $1.2 million. As I understand it, the debtors largely consist of successful purchasers at auction who have not yet paid for the goods in question. Corresponding with this pool of $2.8 million assets are claims of unpaid vendors which are worth approximately $10 million. The unpaid vendors are about 500 in number. At least four of them contend that they are not unsecured creditors and that the Company's property is impressed with a constructive trust in their favour.
3 It will be seen, at once, that this may involve a series of complex issues. For example, an unpaid vendor whose purchaser has not yet paid may have a constructive trust over the corresponding receivable for the receivables which have not yet been mixed. On the other hand, where a purchaser has paid and the money has gone into the bank account there may be one or more mixing problems. There is a further problem in that at least one of the unpaid vendors, the Estate of Hickinbotham, has claims which depend not on the contractual documentation but on actual events which took place between the Company and the executors before the appointment of administrators. Accordingly, it cannot be assumed that the claims of all the unpaid vendors are the same.
4 If some or all of the unpaid vendors are successful further issues will arise between them as to how the assets are to be split. Clearly with $10 million of claims pursuing $2.8 million of assets there is going to be a write-down. But how this will be done cannot yet be known. As I have said, the receivables claim may have its own twists and turns and even with the bank account there may yet be questions as to how any particular reduction is to be achieved.
5 Ranged against the unpaid vendors are the claims of the secured creditor Jadig Investments Pty Ltd ('Secured Creditor') which claims to have a registered fixed and floating charge over all of the assets of the business including the money in the account and the receivables. It is owed about $6 million.
6 If the Secured Creditor is successful in resisting the trust claims of the unpaid vendors, it will be in immediate dispute with the liquidators and the preferred creditors. The liquidators conducted a stocktake of the business whilst they were administrators at a cost of around $1.1 million. It would appear likely that the liquidators are entitled to an indemnity out of the assets of the Company for the costs of the stocktake and that indemnity is supported by a lien: White, in the matter of Mossgreen Pty Ltd (Administrators Appointed) v Robertson [2018] FCAFC 63. The liquidators claim that that lien, as well as the claims of the priority creditors who are employees, rank ahead of the claims of the Secured Creditor. This is disputed by the Secured Creditor.
7 Given that the claims of these four classes of creditor add up to approximately $18 million and the only substantive assets are the cash and receivables of $2.8 million it appears very likely, perhaps inevitable, that the general creditors will receive zero cents in the dollar. The debate which exists does not therefore relate to the general creditors who will not realistically be in the picture. It is instead a debate between various trust claimants, a secured creditor, liquidators asserting a lien and priority creditors.
8 Most of the parties, with the exception of the Secured Creditor, would like to see a process whereby some separate questions about the existence of the trusts are posed and then resolved in the present proceeding. They suggest the stating of a separate question and the appointment of representative members of the various classes of unpaid vendor.
9 The Secured Creditor has indicated that if successful it will seek costs against the unsuccessful representative parties. This would appear to provide a powerful incentive against any unpaid vendor being willing to volunteer as a representative party. The position of the Secured Creditor therefore largely defeats the other parties' proposal on practical grounds. In addition, I have my doubts that the resolution of the trust question in a directions suit such as the present could be effective to bind unpaid vendors who were not before the Court.
10 What now exists, therefore, is a three-way tussle (four-way if one counts the priority creditors) over a fund of $2.8 million by sets of parties who all have the right to feel highly aggrieved that they find themselves in this situation at all. The unpaid vendors thought they were selling goods at an auction house and had no reason to believe they would find themselves in a very complicated court case apparently having to argue that they should be paid for what they sold. The Secured Creditor put a lot of money into the Company and took a security interest precisely to protect itself against being involved in disputes such as the present. The liquidators, who had nothing to do with the Company at all until they were appointed administrators, now find themselves fighting for their own remuneration which is normally very rarely in issue in a winding up. In short, one here is faced with a labyrinth with no clear path to resolving the competing claims.
11 The practical choices appear to be between three scenarios:
(a) The parties co-operate to put up a short question as cheaply as possible;
(b) The parties are funded out of the fund to litigate over the fund; or
(c) The parties litigate over the fund but at their own cost.
12 The position of the Secured Creditor makes (a) impossible and I have my doubts as to whether it can be done in a directions suit. Although (b) may simplify the issues at hand, it is potentially very unfair. With the number of parties involved the fund would be quite negatively impacted and the effect would be that the losing parties would have been litigating largely at the expense of the winning party.
13 That leaves only (c). The difficulties with (c) should be frankly acknowledged. Any suit by an unpaid vendor will most likely have to join all of the unpaid vendors to it in order to be properly constituted. Given there are 500 or so of them this may well be a complex undertaking.
14 Further, there may be a real problem if no claims are ultimately made. Any claim will require leave to proceed under s 500(2) of the Corporations Act 2001 (Cth). I propose to grant leave to proceed under s 500(2) to any unpaid vendor who commences a proceeding before 14 August 2018. I will add the assistance of the Court to this extent: any such unpaid vendor may apply to be joined as an interested party to this proceeding and I will permit their claim to proceed by way of points of claim in this proceeding. I will permit the liquidators to provide details of the unpaid vendors to persons interested in making such a claim and to be remunerated out of the fund for that purpose.
15 The matter will otherwise stand over for case management hearing on 18 September 2018. Any party may restore the matter to the list on 7 days' notice.
16 The directions I make are:
- The proceedings be stood over for a case management hearing at 9:30am on 18 September 2018.
- The liquidators notify the unpaid vendors of these directions and the Court's reasons as soon as possible.
- The liquidators be remunerated out of the cash funds held for the Company for the costs of complying with Direction 2.
- Any unpaid vendor wishing to make a proprietary claim on the assets of the Company apply to this Court in this proceeding by 14 August 2018 for orders that:
(a) they be joined as an interested party to the proceeding (if not already so joined);
(b) they be granted leave to commence a proceeding against the Company under s 500(2) of the Corporations Act 2001 (Cth); and
(c) they be permitted to proceed by way of points of claim within this proceeding.
- Any applications made pursuant to Direction 4 will be returnable for directions at 9:30am on 18 September 2018.
- The liquidators be at liberty to provide details of the unpaid vendors to any person contemplating acting under Direction 4.
- The liquidators be indemnified out of the cash they hold for the Company for the costs of complying with Direction 6.
- Any party may approach the Court to have the matter relisted for directions on 7 days' notice by emailing my associate.
I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.