FEDERAL COURT OF AUSTRALIA

Macquarie University Union Limited v Venues at Macquarie Pty Limited

[2007] FCA 721

MACQUARIE UNIVERSITY UNION LIMITED (IN PROVISIONAL LIQUIDATION) (ACN 085 197 600) v VENUES AT MACQUARIE PTY LIMITED (ACN 111 705 394)

NSD 796 OF 2007

RARES  J

10 MAY 2007

SYDNEY

UPON MACQUARIE UNIVERSITY BY ITS COUNSEL, GIVING TO THE COURT THE FOLLOWING UNDERTAKINGS:

1.                  The usual undertaking as to damages;

2.                  Undertaking, while the plaintiff is in provisional liquidation, to pay the creditors of the defendant specified in TMP-3 of the affidavit of Trevor Mark Pogroske sworn 7 May 2007, to the extent of those creditors’ debts as set out in that document and in accordance with those creditors’ ordinary credit terms;  and

3.                  Undertaking, while the plaintiff is in provisional liquidation, to use its best endeavours for the defendant to conduct its affairs in the ordinary course of business until further order.

THE COURT ORDERS THAT:

1.                  The plaintiff have leave under s 440D of the Corporations Act 2001 (Cth) to file the originating process and interlocutory process returnable instanter and to proceed to seek orders in the form of the orders initialled by me, dated today and placed with the papers.

2.                  Pursuant to s 447A of the Corporation Act 2001 (Cth) the voluntary administration of the defendant is to end forthwith.

3.                  Trevor Mark Pogroske be appointed as official liquidator provisionally of the defendant.

4.                  The provisional liquidator be given all the powers of a liquidator under s 477 of the Corporations Act 2001 (Cth).

5.                  Leave be granted to the former voluntary administrators of the defendant to apply in respect of such costs and disbursements as they make have incurred or be entitled to receive arising out of the voluntary administration to date.

6.                  Liberty to the former voluntary administrators and the official provisional liquidator to apply on 1 day’s notice.

7.                  The proceedings be stood over to 9.30 a.m. on 15 May 2007 before Lindgren J or such other time as his Honour's associate may notify.

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

REASONS FOR JUDGMENT

(REVISED FROM THE TRANSCRIPT)

1                     On 4 May 2007 Lindgren J appointed Mr Pogroske as provisional liquidator to the plaintiff in these proceedings, Macquarie University Union Limited.  That occurred in circumstances outlined in the reasons for judgment his Honour gave in Macquarie University v Macquarie University Union Limited [2007] FCA 743.  

2                     On Tuesday last, 8 May 2007, the plaintiff in these proceedings, Macquarie University Union Limited (in provisional liquidation) filed an application to appoint a provisional liquidator to its wholly owned subsidiary, Venues at Macquarie Pty Limited.  The matter came before Lindgren J who was informed that shortly before the application was called on, the solicitors for the Union company had been informed that Venues had been placed in voluntary administration under the Corporations Act 2001 (Cth).  That led to those proceedings being adjourned to today.

3                     Counsel for the Union company has applied today for the grant of leave to proceed against Venues pursuant to s 440D of the Act and thereafter for the appointment of Mr Pogroske as an official liquidator provisionally of Venues with him to have all the powers in that office of a liquidator under s 477 of the Act.  The Union company also seeks an order pursuant to s 447A of the Act that the voluntary administration of Venues is to end or, alternatively, seeks Mr Pogroske’s appointment in substitution for the two administrators, Mr Albarran and Mr Elliott.  The matter is obviously one in which events are taking place rapidly.

4                     The respective parties read without objection affidavits of Mr Pogroske of 7 and 10 May 2007 and an affidavit of Mr Albarran of 10 May 2007.  The current application comes against the background of the appointment of Mr Pogroske as provisional liquidator of the Union company for the reasons given by Lindgren J.

5                     The bank statements of Venues with the National Australia Bank show that on 27 April 2007 $55,000 was paid to a third party’s account.  Then on 2 May 2007 two miscellaneous debits of $40,000 and $50,000 were made to the Venues account followed by a further debit on 4 May of $65,000.  In total $210,000 was paid out in one week.

6                     Mr Pogroske’s activities as provisional liquidator of the Union company and that company’s position as the sole beneficial shareholder of Venues have enabled him to put forward a balance sheet which shows a deficiency of current assets of $192,572.38 as at 7 May 2007.  The apparent insolvency of Venues is reinforced by the minutes of meeting of its directors held on 8 May 2007 in which a resolution was passed to appoint Mr Albarran and Mr Elliott as administrators in accordance with s 448A of the Act.  In the general discussion section of those minutes the following is recorded:

‘The directors discussed the financial affairs of the company and considered that if the company was not already insolvent it was likely to become insolvent at some future time.’

7                     On the evidence before me, the directors appear to have been responsible for the payments of the four amounts totalling $210,000 from Venues’ account.  To this stage they have not provided an explanation for those payments to the accounting officers and chief executive of the Union company who are responsible also for the conduct of the administration of Venues.  There is obviously some concern as to the financial administration of Venues.  Both Mr Albarran and Mr Pogroske have said in their affidavits something of the investigations which each has undertaken into the affairs of the two companies.  Mr Pogroske’s affidavit of 10 May 2007 suggests that since his appointment last Friday he has obtained a considerable familiarity with the financial affairs of the Union company and, to a degree, so far as he can, of its subsidiary, Venues.  On the other hand Mr Albarran’s investigations, as one might expect with the shorter time in which he and Mr Elliott have been in office, have not progressed to a great degree. 

8                     The first plaintiff in the related proceedings which sought the provisional liquidation of the Union company is Macquarie University.  Both of the companies (that is, the Union company and Venues) are involved in providing services to students at the University.  The evidence is that the University is a debtor to Venues and currently owes it between about $120,000 to $170,000.  There is some uncertainty as to whether a payment of $50,000 has recently been made by the University but there is no suggestion that the University, on the evidence before me, is not making payments in a commercially appropriate way or would otherwise not pay its debts to Venues or the Union company as and when they fall due.

9                     Mr Albarran caused a report to be forwarded to the creditors of Venues on 9 May 2007 in accordance with his obligations to call a first meeting of creditors of the company once it was placed in administration.  However, the report does not reveal any substantive detail of the circumstances which led to the voluntary administration or of any investigations which he has undertaken.  In fairness to him, he has had virtually no time to do so.  He also has given evidence of causing letters to be forwarded today to the directors of Venues and of having sought to have contact with them by telephone to arrange an urgent meeting to discuss their ability to pay out the creditors of Venues in full.  There is no evidence as to whether any such meeting took place after his attempt to contact the directors today at 1.30pm or what the directors propose to do.  The directors did not respond to a similar entreaty to provide information to Mr Pogroske’s solicitors (in their capacity as solicitors for the provisional liquidator of the Union company) which was sent to them on 7 May 2007.

10                  On 16 March 2007 the solicitors retained by the administrators were at that time acting for the Union company instructed by its president, Mr Victor Ma.  He had sought legal advice as to the form in which the Union company could offer financial support or assistance to Macquarie University Students’ Council, a third party, and whether in offering any such support or assistance the Union company board would be in breach of its constitution or would hasten its own company’s potential insolvency.  The solicitors advised in considerable detail about the available avenues by which the board of the Union company may wish to pursue those objectives.  The letter of advice is a long and detailed one.  It refers to the solicitors’ perceptions of their instructions as to both the then board’s objectives and what was perceived to be a strategy of the University in relation to a suggested proposal to create a new company which would take over the funds and assets of the Union company, Macquarie University Students’ Council and another body with the acronym, MUSR (see para 1.3(e)).

11                  There is some material in the evidence to show that the directors of the Union company were concerned to remove the chief executive, Mr Matis, and the financial controller, Ms Jacobson, from being signatories to the Union company’s bank accounts and to appoint a number of the directors of the Union company as directors of Venues.

12                  One matter which the Union company has raised today is the relationship of its former solicitors, who advised the then board about strategies for making payments to other student bodies or associated companies, and who may not be in a position to give independent advice to the administrators.  I do not need to resolve any such suggestion.  It seems to me that the present dispute involves matters of some potential difficulty and complexity which will require investigation by an external controller of one kind or another.   And, whether he or she be an administrator appointed pursuant to the Act or a liquidator, as an officer of the Court, or a receiver, the dispute may involve also the need to commence yet further legal proceedings.

13                  The amounts of money in issue, while significant in the context of the operations of the Union company and Venues, would be dwarfed if two sets of accountants, acting in accordance with their fiduciary duties as either administrators or liquidators, were engaged in essentially investigating the same transactions and pursuing the same avenues of potential recovery.  Given the early days of the administration of Mr Albarran and Mr Elliott and, indeed, the early days of Mr Pogroske’s administration as provisional liquidator of the Union company, the choice that is open to me requires the selection of a remedy which is likely to be least harmful to the long term interests of the creditors of both the Union company and its subsidiary, Venues, and is most likely to achieve a result that is for the benefit of both companies, then creditors and members.

14                  I am not in any way critical of what Mr Albarran and Mr Elliott have done to date but it seems to me that their role is, as Mr Albarran has indicated in his affidavit, one in which his duties would require him and Mr Elliott to investigate the same things that Mr Pogroske has to some degree already investigated in some depth and will need to continue investigating.  That seems to me to be a most unfortunate outcome for the two companies. There is a substantial deficiency of current assets as to current liabilities of Venues.  Both it and the Union company are in effect in common cause in providing services to students and others at the University.  It is in the interests of their creditors generally and individually that there not be a duplication that wastes resources.  Professional costs, if both firms of accountants act in accordance with their duties to investigate properly and fully, are likely to be in the order of perhaps not twice, but certainly something close to twice, the amount that would be payable were only one of them undertaking the same investigations.  At the moment no one has suggested there would be a real and sensible conflict of interest or duty if Mr Pogroske were to perform both roles.

15                  The matters which I must address for the purposes of determining whether to appoint Mr Pogroske to, in effect, replace Mr Albarran and Mr Elliott are contained in ss 440A(3) and 447A of the Act.  The general power in s 447A(1) authorises the Court to make such orders as it thinks appropriate about how Pt 5.3A is to operate in relation to a particular company.  The width of that power was discussed by the High Court in Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270, esp at 279-280 [18], 282 [26].  While s 447A(2) gives examples as to matters which might actuate the Court in concluding that it is satisfied that the administration of a company should end, those examples are not exhaustive.  Indeed, the third example is simply that if the Court thinks it should do so ‘for some other reason’, it may act.

16                  I am of opinion that the ordinary and natural meaning of s 447A(1) is to confer upon the Court a power which is prima facie unconfined, in circumstances such as the present, other than by reference to the subject matter, scope and purpose of the Act as a whole:  cf  Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 at 40;  Owners of ‘Shin Kobe Maru’ v Empire Shipping Co Inc (1994) 181 CLR 404 at 421.  The undesirability of two companies, one relatively small, having two separate external forms of administration in which there is likely to be a large overlap in the costs incurred in those administrations and where those costs are likely, in the short term, to be substantial, is a matter which I regard as being of considerable significance in the desirability of there continuing to be two separate firms of professionals involved in the administrations of these two companies.

17                  I am of opinion that that is not a desirable course in light of the very brief period in which Mr Albarran and Mr Elliott have held office and the likely consequences of any protraction of their continuing to do so, given that the investigations which they have properly sought to undertake will substantially overlap with those Mr Pogroske himself is seeking to undertake.

18                  Additionally, a factor which is relevant to determining whether the administration of Venues should end is whether I would be satisfied under s 440A(3) that it is in the interests of the creditors of Venues for it to continue under administration rather than to have a provisional liquidator appointed.

19                  The objects of Pt 5.3A are to seek the administration of the property and affairs of an insolvent company in a way that maximises the chances of it, or as much as possible, of its business, continuing in existence, and, if it is not possible to do so, that results in a better return for the company’s creditors than would result from immediate winding up (see s 435A).  I am mindful, from the perspective of the material currently in evidence, that a substantial consumption of Venues’ resources in a duplication of effort in investigating its affairs and conducting an administration is likely.  This suggests that Mr Pogroske’s appointment as provisional liquidator of Venues is a better alternative.

20                  The University has supported the application of the Union company’s provisional liquidator, Mr Pogroske, by offering undertakings to the Court, namely, the usual undertaking as to damages, an undertaking that while the Union company is in provisional liquidation the University will pay Venues’ current creditors identified in Mr Pogroske’s affidavit of 7 May 2007 to the extent that they are in accordance with their ordinary creditor terms, and also an undertaking that while the company is in provisional liquidation, it will use its best endeavours for Venues to continue to conduct its affairs in the ordinary course of business until further order.

21                  I am of opinion that this is likely to provide a better outcome for the creditors and the users of Venues’ services than the situation were separate administrators to continue to hold office and to perform their statutory functions under Pt 5.3A.

22                  For these reasons I am of opinion that I should make the orders sought by the Union company.

Associate:

Dated:         25 May 2007