FEDERAL COURT OF AUSTRALIA

Cussen (Liq), in the matter of Zerren Pty Ltd (in liq) [2017] FCA 981

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 479(3) of the Corporations Act 2001 (Cth), the plaintiffs are justified in treating the property located at 2E/12 King Street, Wollstonecraft NSW 2065 and identified in NSW Land and Property Information folio identifier 45/SP58848 (“Wollstonecraft Property”), as property owned by the second plaintiff in its own right.

2.    Pursuant to s 477(2B) of the Corporations Act 2001 (Cth), approval is granted, nunc pro tunc, to the second plaintiff to enter into a contract for the sale and purchase of the Wollstonecraft Property dated 28 February 2017 between the second plaintiff as vendor and Andrew Francis Yardley and Maria Alice Yardley as purchasers.

3.    An order that the plaintiffs’ costs of this application be costs in the winding up.

4.    Pursuant to s 37AF of the Federal Court of Australia Act 1976 (Cth), on the ground that the order is necessary to prevent prejudice to the proper administration of justice within the meaning of s 37AG(1)(a), all reference to the purchase price of the Wollstonecraft Property referred to in exhibits NRC-1 and NRC-2 to the Affidavit of Neil Robert Cussen dated 7 July 2017 be suppressed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

GLEESON J:

1    On 26 July 2017, I made a direction and orders on the ex parte application of the first plaintiff (“liquidator”) to facilitate the completion of a sale of property in Wollstonecraft, New South Wales, in the course of the liquidation of the second plaintiff (“Zerren”).

2    These are my reasons for making the direction and the orders.

Background

3    On 24 June 2014, on the application of the Chief Commissioner of State Revenue, Zerren was wound up pursuant to an order of the Supreme Court of New South Wales, and the liquidator was appointed. At that time, the sole director and shareholder of Zerren was Geanne Shirley Merrick (“Ms Merrick”). Ms Merrick had been a director of Zerren since 15 December 1978.

4    From 15 December 1978 to 20 October 2008, Alastair McClelland Merrick (“Mr Merrick”) was also a director of Zerren. He had also previously been a shareholder of Zerren.

5    Immediately prior to the liquidator’s appointment, Zerren was the registered proprietor of two parcels of real property: at Willoughby and Wollstonecraft. Zerren did not have any other assets.

6    In October 2014, the Australian Taxation Office lodged a proof of debt in the liquidation which shows two accounts: one for Zerren and one referring to Zerren as trustee for the Merrick Family Trust. This was the first occasion on which it was suggested to the liquidator that Zerren may have operated as trustee for that trust.

7    During 2014 and 2015, the liquidator sold the Willoughby property.

8    In February 2017, the liquidator caused Zerren to exchange contracts for the sale of the Wollstonecraft property to Andrew and Maria Yardley.

9    Thereafter, the liquidator sought to obtain a land tax assessment notice for Zerren. On about 8 March 2017, the liquidator received a letter from the NSW Office of State Revenue (“OSR”) which stated that land tax was payable for the 2017 tax year on the Wollstonecraft property owned by “ZERREN PTY LTD ATF MERRICK FAMILY TRUST” (“OSR settlement letter”). This letter was the first indication the liquidator received that the Wollstonecraft property may be held on trust by Zerren.

10    The liquidator then made extensive enquiries in an effort to establish whether the Wollstonecraft property was held on trust. Those inquiries revealed:

(1)    a computer generated 2008 land tax assessment located by the OSR, said by an officer of the OSR to show that Zerren as trustee for the Merrick Family Trust had been paying land tax for the Wollstonecraft property since 2008; and

(2)    no other evidence that the property was acquired or held by Zerren as trustee for any trust. In particular:

(a)    records provided by Zerren’s lender, National Australia Bank, do not include anything to suggest that the Wollstonecraft property was acquired or held by Zerren as trustee for any trust;

(b)    records provided by the solicitors who acted for Zerren on the purchase of the Wollstonecraft property in 2007 do not make any reference to the acquisition of the property as trustee for any trust;

(c)    the accountants who acted for Zerren at the relevant time wrote a letter to the plaintiffs’ solicitor saying that they did not have any documents suggesting that Zerren purchased or held the Wollstonecraft property at any time in a capacity as trustee for the Merrick Family Trust; and

(d)    Ms Merrick and Mr Merrick have each made statutory declarations which state that, to their knowledge, Zerren holds the Wollstonecraft property in its own right and not as the trustee for any trust. Further, they each believe that the OSR was in error in showing that Zerren’s ownership of the property was as trustee for the Merrick Family Trust.

11    The OSR has confirmed that it does not have any records to indicate the basis upon which it recorded that Zerren purchased or holds the Wollstonecraft property on trust. In those circumstances, the liquidator considers that it is difficult to place significance on the 2008 land tax assessment and the OSR settlement letter and, despite those documents, his view is that the property is not held on trust.

Legal principles

12    Section 479(3) of the Corporations Act 2001 (Cth) (“Act”) allows a Court-appointed liquidator to apply to the Court for directions in relation to a matter arising under a winding up. Section 479 of the Act was repealed by s 151 the Insolvency Law Reform Act 2016 (Cth) and replaced by Div 90-15 of Sch 2 to the Act. However, the repeal of s 479 and the commencement of Div 90-15 of Sch 2 to the Act were deferred until 1 September 2017 by regs 10.25.01 and 10.25.02(3) of the Corporations Regulations 2001 (Cth), which were in turn inserted by the Corporations and Other Legislation Amendment (Insolvency Law Reform) Regulation 2016 (Cth). As such, s 479(3) continues to apply in this proceeding.

13    The function of a liquidator’s application for directions under s 479(3) is to give the liquidator advice as to the proper course of action for him or her to take in the liquidation: In re MF Global Australia Ltd (in liq) [2012] NSWSC 994; (2012) 267 FLR 27 at [7].

14    In Re Ansett Australia Ltd and Korda [2002] FCA 90; 115 FCR 409, concerning s 479(3), Goldberg J explained at [44]:

When liquidators and administrators seek directions from the Court in relation to any decision they have made, or propose to make, or in relation to any conduct they have undertaken, or propose to undertake, they are not seeking to determine rights and liabilities arising out of particular transactions, but are rather seeking protection against claims that they have acted unreasonably or inappropriately or in breach of their duty in making the decision or undertaking the conduct. They can obtain that protection if they make full and fair disclosure of all relevant facts and circumstances to the Court. In Re G B Nathan & Co Pty Ltd (1991) 24 NSWLR 674, McLelland J said at 679-680:

The historical antecedents of s 479(3) ..., the terms of that subsection and the provisions of s 479 as a whole combine to lead to the conclusion that the only proper subject of a liquidator’s application for directions is the manner in which the liquidator should act in carrying out his functions as such, and that the only binding effect of, or arising from, a direction given in pursuance of such an application (other than rendering the liquidator liable to appropriate sanctions if a direction in mandatory or [prohibitory] form is disobeyed) is that the liquidator, if he has made full and fair disclosure to the court of the material facts, will be protected from liability for any alleged breach of duty as liquidator to a creditor or contributory or to the company in respect of anything done by him in accordance with the direction.

...

Modern Australian authority confirms the view that s 479(3) ‘does not enable the court to make binding orders in the nature of judgments’ and that the function of a liquidator’s application for directions ‘is to give him advice as to his proper course of action in the liquidation; it is not to determine the rights and liabilities arising from the company’s transactions before the liquidation’: [cases cited omitted].

15    At [65], Goldberg J concluded:

[T]he prevailing principle adopted by the courts, when asked by liquidators and administrators to give directions, is to refrain from doing so where the direction sought relates to the making and implementation of a business or commercial decision, either committed specifically to the liquidator or administrator or well within his or her discretion, in circumstances where there is no particular legal issue raised for consideration or attack on the propriety or reasonableness of the decision in respect of which the directions are sought. There must be something more than the making of a business or commercial decision before a court will give directions in relation to, or approving of, the decision. It may be a legal issue of substance or procedure, it may be an issue of power, propriety or reasonableness, but some issue of this nature is required to be raised. It is insufficient to attract an order giving directions that the liquidator or administrator has a feeling of apprehension or unease about the business decision made and wants reassurance. There must be some issue which arises in relation to the decision. A court should not give its imprimatur to a business decision simply to alleviate a liquidator’s or administrator’s unease. There must be an issue calling for the exercise of legal judgment.

16    Section 477(2B) provides:

Except with the approval of the Court, of the committee of inspection or of a resolution of the creditors, a liquidator of a company must not enter into an agreement on the company’s behalf (for example, but without limitation, a lease or a an agreement under which a security interest arises or is created) if:

(a)    without limiting paragraph (b), the term of the agreement may end; or

(b)    obligations of a party to the agreement may, according to the terms of the agreement, be discharged by performance;

more than 3 months after the agreement is entered into, even if the term may end, or the obligations may be discharged, within those 3 months.

17    In Re City Pacific Ltd [2017] NSWSC 784, at [10] and [11], Brereton J explained the purpose of s 477(2B) as follows:

[10]    The purpose of s 477(2B) is to ensure that the Court exercises some oversight of the liquidator’s actions and completes the relevant power of the liquidator only where it sees that a case for exercise of the power in the particular circumstances has sufficiently been shown. The role of the Court is to grant or deny approval of the liquidator’s proposal and not to develop some alternative proposal. But the main consideration, in determining whether to give approval under s 477(2B), is the impact of an agreement on the duration of the liquidation and whether it is, in all the circumstances, reasonable in the interests of the administration.

[11]    In Re One.Tel Ltd (2014) 99 ACSR 247; [2014] NSWSC 457 at [26], I referred, with approval, to the summary of the relevant principles by Gordon J in Re Steward Newtronics Pty Ltd [2007] FCA 1375 and by Hasluck J in Re Bell Group Ltd [2009] WASC 235, in the following terms:

In reviewing the liquidator’s proposal, the court pays due regard to his or her commercial judgment and knowledge of all of the circumstances of the liquidation but satisfies itself that there is no error of law or ground for suspecting bad faith or impropriety, and evaluates whether the proposal is consistent with the expeditions and beneficial administration of the winding up … the Court’s approval is not an endorsement of the proposed agreement, but merely permission for the liquidator to exercise his or her own commercial judgment in the matter. Thus, the approval confers or completes liquidator’s power to enter into the transaction but does not amount to the court approving the transaction itself.

(footnotes omitted)

18    A liquidator should seek the Court’s approval before entering into a long term agreement. However, the Court may give retrospective approval to an agreement under s 477(2B) in appropriate circumstances: Re Kevin Jacobsen Pty Ltd (in liq) [2016] NSWSC 538; (2016) 113 ACSR 277 at [75]; Hamilton, re ACN 101 634 146 Pty Ltd (in liq) [2014] FCA 687; Stewart, re Newtronics Pty Ltd [2007] FCA 1375 at [25]; Chamberlain v RG&H Investments Pty Ltd; re Hardy Bros (Earthmoving) Pty Ltd (in liq) (No 2) [2009] FCA 1531; (2009) 76 ACSR 415 at [22]- [24].

Consideration

19    I was satisfied that the issue raised by the liquidator was an appropriate subject matter for a direction under s 479(3) because it raises a legal issue of substance as to the capacity in which Zerren holds the Wollstonecraft property, affecting the manner in which the liquidator should carry out his functions. I was satisfied, on the basis of the evidence presented and having regard to the liquidator’s opinion that the property is not held on trust, that I should give the direction sought.

20    The contract for sale would not have required approval under s 477(2B) except for the question as to whether the property was held on trust, which arose after contracts were exchanged. In those circumstances, I was satisfied that I should grant approval, nunc pro tunc, to the liquidator’s entry into the contract for sale of the Wollstonecraft property.

21    The liquidator’s costs of the application should be costs in the winding up.

Associate:

Dated:    23 August 2017