FEDERAL COURT OF AUSTRALIA
Australian Securities & Investments Commission v Forestview Nominees Pty Ltd (No 3) [2006] FCA 1710
Corporations Act 2001 (Cth) s 459A, s 95A, s 459C
WAD 178 OF 2006
FRENCH J
7 DECEMBER 2006
PERTH
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IN THE FEDERAL COURT OF AUSTRALIA |
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WESTERN AUSTRALIA DISTRICT REGISTRY |
WAD 178 OF 2006 |
IN THE MATTER OF FORESTVIEW NOMINEES PTY LTD
ACN 063 440 102 (Receivers and managers appointed)
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BETWEEN: |
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Applicant
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AND: |
FORESTVIEW NOMINEES PTY LTD ACN 063 440 102 (RECEIVERS AND MANAGERS APPOINTED) Respondent
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FRENCH J |
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DATE OF ORDER: |
7 DECEMBER 2006 |
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WHERE MADE: |
PERTH |
THE COURT ORDERS THAT:
1. The applicant have leave under subs 459P(2) of the Corporations Act 2001 (Cth) (the Act) to make this application.
2. The respondent be wound up in insolvency by the Court.
3. Simon Andrew Read and Clifford Stewart Rocke of PPB, Level 1, 5 Mill Street, Perth WA 6000 and Ian Menzies Carson of PPB, Level 10, 90 Collins Street, Melbourne, Victoria 3000, be appointed as joint and several liquidators of the respondent.
4. The applicant’s costs including all reserved costs be taxed and be reimbursed out of the property of the respondent in accordance with subs 466(2) of the Act.
5. Pursuant to Order 26 of the Federal Court Rules and subject to the appointment of receivers and managers appointed for the purpose of enforcing the charge identified in a Deed of Appointment dated 30 March 2006, annexed to the affidavit of Oren Zohar sworn in these proceedings on 29 June 2006, Simon Andrew Read, Clifford Stewart Rocke and Ian Menzies Carson be appointed as joint and several receivers without security of the property of the Matheson Unit Trust for the purpose of preserving its assets, and, if they consider it to be advantageous to do so, selling or otherwise realising those assets.
6(a) The receivers have the powers, with all necessary adaptations, as are referred to in s 477(2) of the Act.
(b) Liberty to the receivers and any beneficiary of the Matheson Unit Trust to apply in relation to the exercise of any of the receivers’ powers.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
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IN THE FEDERAL COURT OF AUSTRALIA |
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WESTERN AUSTRALIA DISTRICT REGISTRY |
WAD 178 OF 2006 |
IN THE MATTER OF FORESTVIEW NOMINEES PTY LTD
ACN 063 440 102 (RECEIVERS AND MANAGERS APPOINTED)
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BETWEEN: |
AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION Applicant
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AND: |
FORESTVIEW NOMINEES PTY LTD ACN 063 440 102 (RECEIVERS AND MANAGERS APPOINTED) Respondent
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JUDGE: |
FRENCH J |
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DATE: |
7 DECEMBER 2006 |
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PLACE: |
PERTH |
REASONS FOR JUDGMENT
Introduction
1 On 28 June 2006 the Australian Securities and Investments Commission (ASIC) filed an application for the winding up, on the ground of insolvency, of Forestview Nominees Pty Ltd (Receivers and Managers Appointed) (Forestview). In its application ASIC relies upon a presumption of insolvency flowing from the appointment of receivers and managers of Forestview under a floating charge and the receiver and manager’s subsequent possession and control of Forestview’s property for the purpose of enforcing that charge. For the reasons that follow I am satisfied that the presumption of insolvency is not displaced and that a winding up order should be made.
Factual and procedural background
2 The factual and procedural background to the present application was set out in Australian Securities & Investments Commission v Forestview Nominees Pty Ltd (Receivers and Managers Appointed) [2006] FCA 1530 concerning an appeal against a decision by the receivers and managers to refuse to release funds for legal representation of the company in these proceedings. So that these reasons may be self contained, it is convenient to reproduce the bulk of the factual and procedural background set out in the earlier judgment.
3 Forestview was incorporated in February 1994. Its current directors are Norman Phillip Carey, who has been a director since its incorporation, and his sister, Karen Sandra Carey-Hazell, who has been a director since 19 January 1996. The company is trustee of the Matheson Unit Trust. On 8 December 1998 the company granted a fixed and floating charge to Sandhurst Trustees Ltd (Sandhurst). The charge was assigned to Perpetual Nominees Ltd (Perpetual) as custodian of the ING Mortgage Pool for ING Funds Management Ltd as the responsible entity of The ING Mortgage Pool (ING) (ING Charge) on 28 June 2000.
4 Clause 2 of the ING Charge recited that Sandhurst, the mortgagee, had agreed to provide or continue providing credit or financial accommodation from time to time to, or at the request of, Forestview upon the condition that Forestview entered into the mortgage. The money secured by the Charge was defined expansively in cl 4.1.15 and included:
‘4.1.15.1 any money which at any time the Borrower in any capacity and whether alone or with others:-
4.1.15.1.1 is actually or contingently liable to pay to the Mortgagee; or
4.1.15.1.2 may become actually or contingently liable to pay to the Mortgagee in the future pursuant to any transaction or arrangement at any time entered into or made by the Mortgagee with any person;’
Subclauses 4.1.15.2 and 4.1.15.3 are not material for present purposes. The definition was extended in 4.1.15.4 to:
‘all moneys expended by the Mortgagee to make good any breach or non-compliance by the Mortgagor of any term, covenant, condition, or agreement on the part of the Mortgagor to be observed or performed under this document and all moneys incurred or spent by the Mortgagee in exercising or attempting to exercise any of the powers under this document together with interest on those moneys from the date of expenditure until repayment at the rate specified in this document and if more than one rate is specified then at the higher rate or if no rate is specified then at the Applicable Rate, and where the context permits means any part of that money;.’
5 The property the subject of the charge was designated the ‘Mortgaged Property’ defined in cl 4.1.13 as follows:
‘“Mortgaged Property” means all the property, undertaking and rights presently or in the future held by the Mortgagor including (without limitation):
4.1.13.1 rights to receive capital and other money from shareholders or, where the Mortgagor is a trustee, beneficiaries of a Trust;
4.1.13.2 the goodwill attaching to any Business;
4.1.13.3 any property, undertaking or rights held as trustee; and
4.1.13.4 any lease, Licence or franchise held or owned by the Mortgagor in relation to a Business;’
Clause 11 of the Charge prohibited any dealing including encumbering the Mortgaged Property without the mortgagee’s consent. Clause 24.7 provided, inter alia, that where the mortgagee’s consent is required under the mortgage it was not valid unless expressly given in writing by the mortgagee.
6 The powers of the mortgagee under the Charge were extensive. They were set out in cl 16. They included powers to “enter, seize, take possession of, manage and use the Mortgaged Property” (cl 16.2.1) and to “deal in any way with the Mortgaged Property, any estate or interest in it, any right attaching to it or any encumbrance affecting it” (cl 16.2.12).
7 On 23 January 2006 Forestview granted an equitable mortgage in favour of Bowesco Pty Ltd (Bowesco). This grant was made without the consent of ING. It was treated as an Event of Default under the Charge. A notice of breach was sent to Forestview on 7 March 2006 by Corrs Chambers Westgarth (Corrs) acting for ING. Mr Carey wrote to Corrs on 9 March 2006 stating that the security had been lodged so that Bowesco could “assist Forestview in its funding requirements for the expansion of the Forresfield Shopping Centre, Stage 2” having regard to a recent commitment for expansion by Kmart. He said that Bowesco had not lent any money to Forestview and that the security therefore had no impact on ING’s interest under its security. He further stated that funding would be required for predevelopment costs and that it was in Forestview’s interests and ING’s to move forward with the Kmart proposal given the significant increase in value this would bring to the shopping centre property. He concluded his letter by saying:
‘If this is not acceptable could you explain why and if you require it we will immediately rectify the alleged breach by removing the security.’
According to Mr Carey’s affidavit of 18 August 2006, sworn in these proceedings, he did not receive a reply from Corrs. He took no steps to remove the mortgage.
8 On 30 March 2006 Oren Zohar, Mark Anthony Korda and David John Winterbottom, all partners of KordaMentha, were jointly and severally appointed receivers and managers of Forestview for the purpose of enforcing the charge. They entered into possession of and assumed control of Forestview’s property on the date of their appointment. The appointment was effected by a deed between them and Perpetual as custodian of The ING Mortgage Pool for ING Funds Management Ltd as the responsible entity of the ING Mortgage Pool.
9 On 28 June 2006 ASIC filed an application in this Court, seeking leave to apply and applying for the winding up of Forestview on the ground of its insolvency. The application relied upon the presumption of insolvency, flowing from s 459C(2)(c) of Corporations Act 2001 (Cth) (the Act) by virtue of the appointment of the receivers and managers.
10 On 11 August 2006 orders were made requiring Forestview to file and serve any affidavit in opposition to the grant of leave to ASIC to bring the application by 18 August 2006. ASIC was to file and serve any affidavit in reply by 25 August 2006. The following order was then made:
‘The application so far as it relates to leave to proceed be set down for 31 August 2006 at 2:15pm WST, and if leave to proceed is then granted consideration will be given as to whether to proceed immediately with the substantive application.’
An affidavit was filed on 18 August 2006 sworn by Mr Carey in opposition to the application. His affidavit essentially went to the solvency of Forestview. He stated in it his belief that the appointment of the receivers was not indicative of any inability of Forestview to pay its debts when they became due and payable.
11 On 31 August 2006 orders were made declaring that Mr Carey, as a director, was entitled to defend the application in the name of Forestview. The company was given liberty to apply on the question whether any of its assets might be used to meet the costs of defending the application. Other orders relating to discovery of documents were made and the application listed for further directions on 29 September 2006. Further orders were made on that day for the filing of affidavits and amendment of the originating process. The application was listed for hearing on 23 October 2006.
12 On 23 October 2006 the company applied to adjourn the application. The hearing and the adjournment application were adjourned to 25 October 2006. At that time the company sought directions allowing for the programming of an application for funding, presumably pursuant to the liberty granted in the earlier orders. On 25 October 2006 the application was further adjourned to 30 October 2006. On that date, after hearing argument in related matters concerning Lanepoint Enterprises Pty Ltd (Receivers and Managers Appointed) and Bowesco Pty Ltd (Receivers and Managers Appointed) and by counsel for Forestview, judgment on the question whether funding for legal representation should be made available by the receivers and managers out of the assets of the company was reserved. As the Forestview receivers and managers had not been represented at the hearing on 30 October 2006, Forestview was directed to file a minute of its proposed orders for the release of funds for legal representation and to serve on them a copy of that minute together with its supporting affidavits, the written submissions and the transcript of the proceedings on that day. The receivers and managers filed, in response, affidavits sworn by Mr Zohar on 8 November 2006 and by another KordaMentha director, Mr Norman, on 14 November 2006. They also filed submissions opposing the Forestview application.
13 On 15 November 2006 the appeal against the decision of the receivers and managers to make funds available to Forestview for the purpose of defending these proceedings was dismissed.
14 The winding up application came on for hearing on 20 November 2006 along with the application in WAD 180 of 2006 in which ASIC sought winding up orders in relation to Eastlands Pty Ltd (Eastlands).
Statutory Framework
15 Part 5.4 of the Act deals with winding up in insolvency. Section 459A provides that, on an application under s 459P, the Court may order that “… an insolvent company be wound up in insolvency”.
16 The concept of solvency is defined in s 95A of the Act which provides:
‘(1) A person is solvent if, and only if, the person is able to pay all the person’s debts, as and when they become due and payable.
(2) A person who is not solvent is insolvent.’
17 Section 459C provides for presumptions to be made in certain proceedings and relevantly to the present purpose they are as follows:
‘(1) This section has effect for the purposes of:
(a) an application under section 234, 459P, 462 or 464; or
(b) an application for leave to make an application under section 459P.
(2) The Court must presume that the company is insolvent if, during or after the 3 months ending on the day when the application was made:
…
(c) a receiver, or receiver and manager, of property of the company was appointed under a power contained in an instrument relating to a floating charge on such property; or
(d) an order was made for the appointment of such a receiver, or receiver and manager, for the purpose of enforcing such a charge; or
(e) a person entered into possession, or assumed control, of such property for such a purpose; or
(f) a person was appointed so to enter into possession or assume control (whether as agent for the chargee or for the company).
(3) A presumption for which this section provides operates except so far as the contrary is proved for the purposes of the application.’
18 Section 459P identifies the parties who may apply to the Court for a company to be wound up in insolvency. These include ASIC (s 459P(1)(f)). By s 459P(2) an application by ASIC may only be made with the leave of the Court. A condition of such leave is that the Court be “… satisfied that there is a prima facie case that the company is insolvent,…” (s 459P(3)). That leave may be given subject to conditions (s 459P(4)).
19 Section 459R requires an application for a company to be wound up in insolvency to be determined within six months after it is made, albeit the Court may by order extend the period within which an application must be determined but only if it is satisfied that special circumstances justify that extension and the order is made within the relevant six month period, or the last extension thereof (s 459R(2)). The time limited by this section expires on 28 December 2006.
20 Division 5 of the Court’s Corporations Law Rules govern winding up proceedings including applications under Pt 5.4 of the Act. Rule 5.3 provides:
‘An application for leave to apply to the Court for an order that a company be wound up in insolvency may be made at the same time as the application for an order that the company be wound up in insolvency is made.’
21 Rule 5.5 provides for the filing of the consent of an official liquidator who would be entitled to be appointed as liquidator of the company. Rule 5.6 requires notice of the application for the winding up order to be published.
ASIC’s evidence
22 ASIC relied upon affidavits sworn by Kevin Chin and Richard Gomm, both ASIC officers, Wendy Chan, a former Westpoint Group accountant, Oren Zohar, one of the receivers appointed by ING, David McEvoy, Kim Demarte and Katrina McHarg, both Commonwealth officers.
23 The affidavits established what is set out in the factual and procedural outline earlier in these reasons, in particular, the creation of the charge, the appointment of the receivers and their entry into possession and control of Forestview’s property. These matters and the character of the charge as fixed and floating are either not disputed or not able to be disputed and establish the factual foundation for the presumption of insolvency required by s 459C(2). Formalities including the service of the originating process and advertisement of the application were established by the affidavit evidence of Katrina McHarg and Kim Demarte.
24 The last signed set of financial accounts for Forestview covered the period ended 30 June 2003. Those accounts showed net assets of $2, representing contributed capital.
25 Mr Kevin Chin gave evidence of the results of a review of the Triumph accounting database used by the Westpoint Group. The use of that accounting system throughout the Group was explained by Wendy Chan who was employed as an assistant accountant by Westpoint Corporation from 1 December 2003 to 23 September 2005. She described the records maintained with the use of the Triumph system as “in effect the ledgers for each entity”.
26 According to Mr Chin’s affidavit of 29 September 2006 he reviewed the Triumph database and found that there were no financial records for Forestview. On reviewing other documents produced to ASIC he did not locate any financial records for the company distinct from the Matheson Unit Trust. Financial records for that Trust appeared in the Triumph database. The Triumph database for the Matheson Unit Trust showed that:
(a) For the eight months to 31 January 2006 the Trust earned income of about $534,000.
(b) At 31 January 2006 the Trust had:
(i) current assets of $19,000;
(ii) investments in a joint venture of $2,916,000;
(iii) a loan to Westpoint Corporation of $11,265,000;
(iv) a loan to the Bridgeview Family Trust of $1,000,000;
(v) a liability to Matheson’s Holding Pty Ltd of $8,286,000;
(vi) other liabilities to a unit trust and the joint venture of $877,000.
Mr Chin pointed out that Westpoint Corporation is in receivership and has been wound up in insolvency. The Bridgeview Family Trust does not have any income or sufficient current assets to meet a claim for repayment of the loan.
27 Forestview executed guarantees and indemnities in favour of a number of Mezzanine finance companies associated with Mr Carey and Westpoint Corporation. These guarantees secured borrowings from the Mezzanine finance companies by other companies within the Westpoint Group. The Mezzanine finance companies have all been wound up. The debtor companies are under external administration in the form of receivers or liquidators. Cinema City Development Pty Ltd was wound up yesterday by order of this Court. According to the Triumph database accounting information the debts of the debtor companies owed to the Mezzanine finance companies are due and owing. The liquidators of the Mezzanine finance companies have issued notices under the loan agreements on the debtor companies accordingly. They have also issued demands to Forestview and other guarantors under the guarantees of those debts. Forestview has not paid the demands against it which exceed $207,731,000.
28 On 7 April 2006 Forestview wrote a letter to the liquidator indicating that no payments would be made by it under the guarantees. This was on the asserted basis that the guarantees were uncommercial transactions and insolvent transactions and were voidable under s 588FE of the Act. It was also contended that they did not provide the requisite commercial benefit and were limited to the amount of the loan agreements. ASIC submits that Forestview’s debts to the Mezzanine finance companies are due and payable and, alternatively, will become due and that the company is unable to pay those debts.
Mr Carey’s evidence
29 Mr Carey relied upon affidavits sworn by him on 18 August, 31 August, 24 October and 29 October 2006. He also gave oral evidence.
30 The first aspect of the oral evidence concerned the conduct of ING in appointing receivers to Forestview. Mr Carey said he did not take any action to rectify the default under the Charge following his letter of 9 March 2006 to ING’s solicitors Corrs because normally there is a “spirit of cooperation” with banks and financiers. He assumed that, because Corrs did not get back to him, ING was not concerned about what had been done as no money had been advanced under the Bowesco mortgage. On a different tack relevant to this point, he also said that, in June 2005 he had a conversation with a Mr Accabucci, the manager of Treasury Finance Group, which was responsible for arranging the original property loan. At the time of the conversation the loan was being refinanced and extended. According to Mr Carey, Mr Accabucci was acting as the lender’s authorised agent and manager of the loan facility. He told Mr Accabucci about the proposed expansion of the Forrestfield Shopping Centre. He told him that he intended to get funding from Bowesco and that would be done on a secured basis. He did not want to seek any external funding until all relevant documentation, including leases, had been signed with Kmart and the property expansion was ready to proceed. According to Mr Carey, Mr Accabucci was very keen about the uplift in value that would occur because of the Kmart expansion and “… gave permission to put that mortgage on Forestview’s 25% interest at that time”. Mr Carey said this was done orally. He acknowledged that the permission allegedly given by Mr Accabucci predated the execution of the Charge which was signed in December 2005 or January 2006. It was never suggested that any written consent was sought or was forthcoming from ING in relation to the Bowesco security.
31 I regard it as inherently improbable that the manager of Treasury Finance would have given an oral permission of the kind suggested by Mr Carey. It is also inherently improbable that ING would have given an agent (assuming Mr Accabucci were such) authority to grant an oral dispensation in respect of a proposed, but unseen, security. The improbability of this suggestion is enhanced by the timing of the alleged permission. Nor is there any factual basis disclosed upon which it could be said that Mr Accabucci had apparent authority to give such a consent which would somehow overcome the requirement for express written consent contained in the Charge. If the alleged permission had been given and influenced the decision to grant an equitable mortgage to Bowesco then almost certainly some reference to it would have appeared in Mr Carey’s letter of 9 March 2006. I do not accept that Mr Carey received the permission he claims to have received nor that he has shown any grounds for impugning the appointment of the receivers which followed the notice of default.
32 In his affidavit of 18 August 2006, Mr Carey pointed out that Forestview is the owner of a 25% share in properties situated on two titles at Forrestfield. A convenience shopping centre has been developed on the property and incorporates tenants such as Coles and Woolworths supermarkets. Development approval has been obtained from the local authority and the Western Australian Planning Commission to expand the shopping centre to incorporate a discount department store and further specialty stores. Kmart has given a commitment to lease the proposed discount department store.
33 Mr Carey asserted that the development approval and the Kmart lease commitments significantly increased the value of the property. He said that the funds advanced by Perpetual were advanced against a property with a market value of about $30 million. That figure seems to have been a reference to the value of the shopping centre prior to the development approval and the Kmart lease commitments. His view of the property’s value was based on discussions that he had held with several property valuers concerning it and the feasibility of the shopping centre and the project funding. Mr Carey referred to the amount of the secured debt at present as $15.62 million.
34 Forestview’s sole activity is as owner of its interest in the shopping centre. Its only liabilities arise out of that interest. Its share of the shopping centre and the property’s liabilities are paid out of rent, rates and taxes and outgoings payable by the tenants from funds collected by the managing agent, Westpoint Realty, and then paid into the property owners’ joint account. According to Mr Carey, the monthly rental income collected from the shopping centre tenants is sufficient to cover the interest payments due under the facility with ING. The monthly payments due are remitted automatically by debt from a joint bank account in the name of the property owners. Mr Carey said that he believed, based on a bank statement dated 14 July 2006, that the property owners’ joint bank account had a balance of $218,718.09 at that date.
35 Based on the financial information to which he referred and his knowledge of how the rental and outgoings were collected and how the payments due under the ING facility were made, Mr Carey believed that at all times Forestview performed its obligations under the facility in a timely manner. He asserted that Forestview has not been in default with respect to its repayment obligations. He also stated in the affidavit his belief that the company is solvent and is able to pay its debts when they fall due. He said that the appointment of the receivers is not indicative of any inability of Forestview to pay its debts when they become due and payable.
36 In a further affidavit sworn 31 August 2006, Mr Carey annexed a correct copy of the charge in favour of ING.
37 In his affidavit sworn on 24 October 2006 Mr Carey pointed to the state of the joint bank account held by Forestview and First United Developments Pte Ltd in respect of the Forrestfield Shopping Centre. During the period from 26 May 2006 to 13 October 2006 the closing balance of the account fluctuated between a maximum of $459,691.48 and a minimum of $59,631.48. The balance at 13 October 2006 was $79,731.73. The affidavit also set out copies of cashflow forecasts for the Forrestfield Marketplace and the Forrestfield Forum which are both part of the shopping centre. They showed a surplus from which interest payments on the loan can be deducted. The total interest payable is in the order of $1.2 million per annum leaving a free cashflow of approximately $1.1 million to which Forestview has a 25% entitlement. The figures included in Mr Carey’s table were as follows:
|
Description |
Total Income 2005/2006 $ |
Total Expenditure 2005/2006 $ |
Total Surplus 2005/2006 $ |
|
Forrestfield Marketplace |
1,985,584 |
719,982 |
1,265,602 |
|
Forrestfield Forum |
1,829,673 |
796,573 |
1,033,100 |
This left an accumulated surplus of $2,298,702.
38 In a further affidavit sworn on 29 October 2006, Mr Carey referred to the recent sale of the Warnbro Fair Shopping Centre for approximately $55 million as reported in the West Australian Newspaper on 11 October 2006. He described the Centre as a “convenience level shopping centre”. Major tenants are Coles and Woolworths and approximately 30 specialty shops. The Centre has a current commitment for expansion from “Big W”. He saw the Forrestfield Shopping Centre as analogous. It had the same major tenants and approximately 35 specialty shops together with a commitment for expansion from Kmart. The net income of the Warnbro Centre was said to be very similar to that of the Forrestfield Centre. Mr Carey went on to state his belief that the Forrestfield Centre’s current value would be in the order of $45 million. This was based on information he had about the Warnbro Fair Shopping Centre and his knowledge of the current market for these types of shopping centres.
39 On the assumption of a value of $45 million less a borrowing of $15.62 million, the current state of the advance from ING, the following position would arise:
1. The net tangible asset value of the property is $29.38 million.
2. Forestview’s 25% interest is therefore $7.345 million, plus the value of the adjoining development land which it owns fully.
Mr Carey said he estimated the adjoining land to have a value of approximately $5 million. On the preceding basis the total value of Forestview’s interest in the property is in order of $12.345 million.
40 In his oral evidence Mr Carey cited his own qualifications and experience in relation to shopping centre developments as providing a foundation for his opinion about the value of the Forrestfield Shopping Centre. He referred in this context to the recent sale of the Warnbro Fair Shopping Centre which has similar characteristics to the Forrestfield Shopping Centre. It was his opinion that the sale price secured for the Warnbro Fair Shopping Centre was an indicator of the value of the Forrestfield Centre. He made the point that there was no default on the part of Forestview or its joint venture partner in relation to interest payments due on the secured debt. At present a nominal rather than the default interest rate is being charged by ING. Mr Carey contended that, on that basis, the debt of $15.62 million secured by the Charge could not be said to be presently due and payable.
41 Mr Carey also pointed to what he called a “genuine dispute” about the Mezzanine finance guarantees given by Forestview. He cited a letter dated 7 July 2006 from Forestview’s solicitors to the solicitors acting for the liquidators of Ann Street Mezzanine Pty Ltd (In Liquidation), Bayshore Mezzanine Pty Ltd (In Liquidation), Bayshore Heritage Mezzanine Pty Ltd (In Liquidation), Market Street Mezzanine Ltd (In Liquidation), Mount Street Mezzanine Pty Ltd (In Liquidation) and York Street Mezzanine Pty Ltd (In Liquidation).
42 In advising that Forestview and other guarantors of debts owed to the Mezzanine companies disputed the validity and enforceability of the guarantee and indemnity agreements, the solicitors made a number of points. In relation to guarantees given by Forestview and others in connection with loan agreements between the Mezzanine companies and Bayshore Port Melbourne Pty Ltd, Scots Church Development Ltd and Westpoint Management Ltd, they contended:
1. The Mezzanine companies had, without the written agreement of the guarantors, provided financial accommodation substantially in excess of the amount stated in the guarantee and indemnity agreements. On that basis the guarantor companies were in a position to elect to terminate the guarantee and indemnity payments. The letter gave notice that they so elected.
2. In the alternative, Forestview and the other companies’ liability under the guarantee and indemnity agreements was limited to the amounts specified in the definition of “Advance” in each guarantee and indemnity agreement. The guarantees, it was said, were to be reduced or extinguished by the first payment received by the Mezzanine companies in repayment of the principal loan.
It may be noted in passing that the excessive financial accommodation complained of was provided by and to the companies in or associated with the Westpoint Group of which Mr Carey was the Group Managing Director. There is an element of artificiality about the complaint raised by Forestview’s solicitors.
43 In respect of guarantee and indemnity agreements relating to a loan between North City Development Pty Ltd and Mount Street Mezzanine Pty Ltd, Forestview and the other companies took the position that cl 14.3 of the loan agreement expressly limited the guarantors’ liability to the properties mortgaged under the loan agreement and any related document. Given that no such properties were mortgaged, the liability of Forestview and the other guarantor companies was nil. These of course were simply assertions made by the solicitors for Forestview and other guarantor companies. They are not evidence of anything beyond the fact that the assertion was made.
44 Mr Carey, in his oral evidence, also claimed that the guarantees into which Forestview entered were only provided on the strength of written legal advice from Freehills, the solicitors who he said, designed and developed the promissory note product. According to Mr Carey their advice was that the promissory notes would not be treated as an interest in a managed investment scheme. However, late in 2004, the Supreme Court of Western Australia ruled that they were such an interest. Because of the advice, it was said, Forestview entered into the guarantees. It would not have done so but for that advice. If there were any action to enforce the guarantees, Forestview and the other guarantors would seek indemnity from their former solicitors. Again this evidence goes no higher than asserting that a claim under the guarantees would precipitate a cross-claim for indemnity against a third party, namely Forestview’s former solicitors.
45 The third matter on which Mr Carey gave evidence was the existence of commercial negotiations with the liquidator of the Mezzanine finance companies directed to reaching a commercial settlement in relation to the guarantees. He accepted that the negotiations in that respect had not been finalised.
46 In cross-examination Mr Carey acknowledged that he had not had regard to sales evidence in forming his opinion about the value of the Forrestfield Shopping Centre other than that relating to the Warnbro Fair Shopping Centre. He accepted that there are other shopping centres within 8 to 12 kilometres of Forrestfield.
47 There was also cross-examination of Mr Carey about his awareness of the level of “loans” from the Mezzanine companies to other Westpoint companies covered by guarantees including those provided by Forestview. Evidence on this question took the matter no further than the proposition that there was an assertion of a dispute about liability under the guarantees.
48 Questioned about his cashflow figures, Mr Carey’s ultimate position was expressed thus:
‘The situation is this, this shopping centre has been running for more than 10 years, so its cash flow has been well established and it has been built up over those 10 years, and the very reason you are seeing a finding of these yields with people buying the shopping centres at much higher prices, is the much lower risk in the stabilised cash flow coming from the shopping centre, and that is a reflection of the accuracy of that cash flow.’
49 Having considered Mr Carey’s evidence, both on affidavit and given orally, it does not, in my opinion, establish as a positive proposition that Forestview is solvent in the sense that it is able to pay all its debts as and when they become due and payable within the meaning of s 95A of the Act. Forestview has operating against it in this case the presumption of insolvency which the Court is required to apply and which flows from the appointment of the receivers under a floating charge and their entry into possession and control of Forestview’s property. Over and above the presumption, the evidence adduced by ASIC points to very substantial liabilities under guarantees entered into by Forestview with respect to the Mezzanine company loans and in respect of which demands for payment have been made by the liquidators. Forestview’s solicitors have disputed the companies’ liability under the guarantees but the evidence goes no further than to show the existence of the contentions raised by those solicitors.
50 Mr Carey made the point that Forestview is not in default in respect of the secured debt. The fact is that the company was in default under the Charge and the receivers were appointed as a result. The circumstances of the default arose from the grant of a security over the property of the company in favour of another company in the Westpoint Group, namely Bowesco. It is not in the least surprising that ING would act swiftly to protect its position. As noted already, the suggestion by Mr Carey that there was some kind of advance oral permission for the granting of the security, unseen, to Bowesco and in advance of the execution of the Charge, is untenable.
51 In my opinion the evidence relevant to solvency advanced by Mr Carey does not rise above the level of argument and contention. I do not consider that I can rely upon his opinion about the value of the Forrestfield Shopping Centre or Forestview’s interest in it. His opinion as to value is based upon an extrapolation from the sale of the Warnbro Fair Shopping Centre and the similarities between that Centre and Forrestfield. It does not involve a considered analysis of other sales evidence. It is the self-serving opinion of an interested party. It is also worthy of note that Forestview’s interest in the Forrestfield Shopping Centre is a 25% interest under a joint venture arrangement with another company.
52 In my opinion the evidence does not displace the presumption of insolvency. That is to say, the contrary has not been proven.
Whether the winding up order should be made
53 In my opinion ASIC has established, by virtue of the presumption of insolvency, a prima facie case that Forestview is insolvent. It therefore meets the condition for the grant of leave to bring the application required by s 459P(3). It is appropriate that ASIC have leave to make the application having regard to its general investigative involvement in relation to the collapse of the Westpoint Group.
54 The ground of insolvency having been made out, I propose to order the winding up of the company. I will also order the appointment of receivers to the assets of the Matheson Unit Trust as proposed by ASIC and will allow the amendment of the originating process set out in its motion of 5 October 2006. I will also allow liberty to the receivers and the beneficiaries to apply in relation to the exercise of the receivers’ powers.
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I certify that the preceding fifty-four (54) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French. |
Associate:
Dated: 7 December 2006
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Counsel for the Applicant: |
Mr CM Slater |
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Solicitor for the Applicant: |
Australian Securities and Investments Commission |
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Mr Norman Carey appeared by leave on behalf of the respondent. |
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Date of Hearing: |
20 and 21 November 2006 |
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Date of Judgment: |
7 December 2006 |
