FEDERAL COURT OF AUSTRALIA

PROCEDURE - discretion to appoint receiver and manager - whether just or convenient to make appointment - whether security required - whether undertaking required

Federal Court of Australia Act 1976 (Cth), s57(1)

Federal Court Rules, O 26 r 3(2), form 40

Beach Petroleum NL v Johnson (1993) 11 ACLC 75, considered

National Australia Bank Ltd v Bond Brewing Holdings Ltd (1990) 8 ACLC 365, applied

MERCATOR PROPERTY CONSULTANTS PTY LTD (ACN 008 737 022) v CHRISTMAS ISLAND RESORT PTY LTD (ACN 009 160 123) AND ORS

WG 3017 of 1998

R D NICHOLSON J

PERTH

29 JULY 1998

GENERAL DISTRIBUTION

Upon the undertaking of the applicant in its own right and as trustee of the Christmas Island Trust, the applicant undertakes to the Court that it will pay to any party adversely affected by the interlocutory appointment of a receiver and manager in this action such compensation (if any) as the Court thinks just, in such manner as the Court directs,

THE COURT ORDERS THAT:

1.         Mr Jeffrey Herbert be appointed receiver and manager of the property of Christmas Island Resort Pty Ltd (“CIR”) until further order.

2.         The receiver and manager shall have the unfettered power to conduct the business and management of CIR  in such manner as he thinks most beneficial to the interests of the members of CIR as a whole.

3.         Without in any way limiting the powers, duties and rights conferred on the receiver and manager by Pt 5.2 of the Corporations Law, the receiver and manager is hereby empowered and ordered to investigate or cause to be investigated:

(a)        the solvency of CIR;

(b)        the position CIR should take in these proceedings.

4.         Within two months of the date of this order and on such other occasions as may be ordered the receiver and manager shall prepare a statement showing the assets and liabilities of CIR as at the last day of the period and a report containing such other information as he thinks necessary to enable the members of CIR to assess the financial position of CIR as at the last day of  the period.

5.         Save for the provisions of par 7 hereof, the directors of CIR shall cease to  hold office with effect from the date hereof.  During the period of the receivership and management:

(a)        the receiver and manager shall assume the management of CIR and, subject to Order 6, shall perform the duties, and may perform any of the functions and exercise any of the powers, of the directors of CIR, including but not limited to having the power to:

(i)         hire and/or lease the assets of CIR; and

(ii)        pay creditors of CIR;

(b)        the provisions of the Corporations Law relating to the keeping of accounts, the appointment and re‑appointment of auditors and the rights and duties of auditors shall continue to apply in relation to CIR, and in the application of those provisions to and in relation to CIR a reference to the directors of CIR shall be read as a reference to the receiver and manager of CIR.

6.         The receiver and manager shall not have the power to sell or otherwise dispose of the assets of CIR, except with the leave of this Court being first obtained.

7.         The power of the directors to appeal to the Full Court of the Federal Court of Australia in the name of CIR be preserved upon their agreeing to indemnify CIR for any costs which it may incur in respect of such proceedings and appropriately securing such costs.

8.         The following additional orders shall apply in relation to the receiver and manager;

(a)        the receiver and manager shall be entitled to reasonable remuneration and reasonable costs and expenses properly incurred in the performance of his duties and the exercise of his powers as receiver and manager to be calculated on the basis of the time reasonably spent by the receiver and manager, his partners and staff in accordance with the Insolvency Practitioners Association scale of fees, such fees to be paid out of the assets of CIR;

(b)        the receiver and manager shall deliver an account for all amounts drawn by him for his remuneration; costs and expenses to the Court every three months until the termination of the period of the receivership and management or until further order and pay any balances as may be due to him or by him in such manner as the Court may direct.

9.         Pursuant to O 26 r 3(2) of the Federal Court Rules the requirement for the receiver and manager to file security, be dispensed with.

10.       The costs of the applicant’s notice of motion dated 3 July 1998 be reserved.

11.       The parties hereto and the receiver and manager have liberty to apply generally.

Note:      Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

GENERAL DISTRIBUTION

EX-TEMPORE REASONS FOR JUDGMENT

HIS HONOUR:  On 14 July 1998 I delivered some reasons in which I set out the factual background to this matter in some detail and then proceeded to address a motion seeking orders in respect of service out of the jurisdiction of the Commonwealth of Australia regarding three of the second respondents.  Evidence is before me today which satisfies me that orders made in that respect had been complied with.

The result of such service, however, has not been particularly fruitful in terms of the hearing today.  Whereas the first respondent was on prior occasions represented, that is not the case today, no instructions being received by its solicitors to make such appearance and no appearance is made for any of the second respondents.

The matter which comes before the Court now is an application brought pursuant to s 57 of the Federal Court of Australia Act 1976 (Cth) (“the Act”).  Subsection 57(1) provides:

“The Court may, at any stage of a proceeding on such terms and conditions as the Court thinks fit, appoint a receiver by interlocutory order in any case in which it appears to the Court to be just or convenient so to do.”

Subsections 57(2) and (3) address consequential liabilities, powers and authorities of a receiver and manager (“the receiver”) so appointed.  The test on which the Court must proceed is one relating to the justness or convenience of it taking that step.

I rely upon the statement of facts set out in my reasons of 14 July 1998 in arriving at a conclusion in relation to that justness or convenience.  The position remains that the first respondent's major asset, namely, its Casino licence, remains in danger of being cancelled or revoked.  That danger has increased as the result of further notification from the relevant Commonwealth Minister (“the Minister”).  While the applicant has in part been apprised of matters pertaining to the affairs of the company, it still has not received all of the matters which on earlier occasions it came to the Court seeking to obtain. 

There remains an arguable case of strong possibility that the affairs of the first respondent are being conducted for the benefit of the first-named second respondent as major shareholder and not for the benefit of the company as a whole.  It remains the case that on 31 July 1998 that second respondent is due to settle with the applicant on the sale of the applicant's shares in the first respondent.  It therefore remains the case that should settlement not proceed on that date the applicant will retain as security the benefit of the shares.  The appointment of a receiver would therefore be a step appropriate to retain the value in the shareholding for the benefit of the applicant.

The evidence before me also now discloses unpaid creditors in excess of $2,000,000.  That indebtedness includes unpaid wages to staff, a matter clearly of deep concern to the Minister who has referred to it in media announcements before me. 

In my opinion, in all these circumstances, it would be just and convenient for the power pursuant to s 57(1) of the Act to be exercised and for the appointment sought to be made.

There remains the question of the form of orders.  Generally the applicant has proposed an amended minute of proposed orders based on those which appear as the orders of the Court made by von Doussa J in Beach Petroleum NL v Johnson (1993) 11 ACLC 75 at 82 to 84.  There are some variations, but the orders in Beach Petroleum have acted as a model for those before me.  It is to be noted, however, that in Beach Petroleum the Court was making a final appointment and not an appointment pursuant to s 57(1) of the Act.

Accordingly, I have proposed, and the applicant accepts, that the amended minute should be further amended, in particular by deleting from the powers of the receiver the powers of sale or disposition of the assets of the first respondent and the power to borrow money for its benefit.  Those powers would only be exercisable upon application to the Court.  There would remain powers of hiring, leasing, paying creditors, entering into joint ventures; all of which, it seems to me, are powers which could only be exercised in the favour of the company as a whole and therefore should be powers possessed by the receiver in the interests of dealing with the assets of the company.

There is the question whether the Court should "otherwise order" for the purposes of O 26 r 3(2) of the Federal Court Rules (“the FCR”), that is, order that it is not necessary for the receiver to file a security with the Court.  The normal form of security is that which appears in form 40 of the FCR.  It requires that a guarantor promise the Registrar of the Court that if the receiver does not account to the Court the guarantor will pay the due amount to a limit stated.  The criteria upon which the Court may otherwise order is not made apparent in the rule.  In addition I have been unable to ascertain from the District Registrar during the course of this hearing the practice of the Court either in this registry or generally as to the exercise of that discretion.  Here it is submitted that where the receiver proposed is a member of the Institute of Chartered Accountants, a member of the Insolvency Practitioners Association of Australia, a registered liquidator, an official liquidator having in excess of 18 years' experience in dealing with receiverships and more than 15 years' experience in managing the conduct of receiverships, where he has previous experience of court-appointed receiverships both in this Court and in the Supreme Court of Western Australia and is in addition supported through his firm by a professional indemnity insurance policy, particulars of which are before the Court, the requirement for a guarantor, which would incur cost, would be unnecessary.  I am inclined to think there is considerable merit in that submission.  However, I am reluctant to finally exercise the discretion in that respect until I have ascertained whether there is any standing practice of the Court of which I should be aware.  I will therefore hold that matter over until chambers tomorrow for determination.

There is a similar but related matter arising in relation to whether the applicant should be called upon to provide the usual undertaking as to damages.  I note that the final orders made in Beach Petroleum were preceded by such an undertaking.  Attention was directed at a previous hearing on behalf of the first respondent to the decision of the High Court of Australia in National Australia Bank Ltd v Bond Brewing Holdings Ltd (1990) 8 ACLC 365 at 367, which again has been drawn to the attention of the Court today on behalf of the applicant.  There the High Court referred to the fact that where damage of the kind consisting of consequences flowing from the fact of an appointment of a receiver and manager and of the defendant's loss of its title to control its assets and affairs is to be apprehended as flowing from such appointment by interlocutory order, consideration must be given to requiring, from the party seeking the order, at least some appropriate undertaking as to damages in the event that the appointment is ultimately shown to be unjustified.  In that particular case it was held that where the judge was prepared to appoint receivers and managers over the whole of the assets and undertakings of the respondent companies on the application of unsecured creditors, it was clear that some such undertaking was an essential condition to the making or continuation of the order.

Here it is submitted that the undertaking should not be required because of the fact the Minister has notified of the possible termination of the licence and has directed payment of the creditors because the unpaid creditors are of the amount previously referred to and because inquiries have been made on behalf of the applicant of the respondents as to whether any such damage would be anticipated by them.  There is in respect of that latter point no evidence of any response.

As I read what the High Court said it is not really dependant on particular evidence but more on the consideration of the fact the appointment may ultimately be shown to be unjustified.  If that were the outcome when the application made by the applicant is finally resolved by the Court, then it would be essential to have an undertaking in place because in the meantime the receiver would have had the management of the whole of the assets and undertakings of the first respondent.  In my view the considerations referred to do not displace what was said by the High Court for the reason I have just given.

There has been tendered to me, in case I was of that view, an undertaking sealed on behalf of the applicant.  There is no evidence before me of the financial position of the applicant.  I am told from the bar table that it is a trustee company.  It is on its face a proprietary limited company.  Whether that undertaking would be satisfactory should in my view be the subject of further evidence to the Court concerning the capitalisation of the company and the nature of the indemnity of the trustee by the trust.  I believe therefore that that matter should also in terms of its finalisation be held over to chambers tomorrow to enable a supplementary affidavit to be filed, which would place the Court in the position of being able to consider whether that undertaking would meet the requirement which the High Court has required in my view in the decision to which attention has properly been drawn. 

For these reasons therefore I would be prepared, subject to resolution of the matters relating to the form of security, if any, and to the undertaking, to make the orders sought in the applicant's amended minute of proposed orders as further amended as earlier described in these reasons. 

Associate:

Dated:              31 July 1998