FEDERAL COURT OF AUSTRALIA

Hall, in the matter of Australian Capital Reserve Limited

(in Liquidation) (ACN 089 189 502) [2008] FCA 1895

CORPORATIONS – liquidators’ application for order that they would be justified in deferring dividend to unsecured creditors – liquidators doubt solvency of company from whom funds are being received – potential preference claim – issue not matter of commercial judgment but rather a question of propriety or reasonableness – note holders oppose deferral of dividends – order made as per liquidators’ request

Corporations Act 2001 (Cth) s 511

Re Ansett Australia Ltd (No 3) (2002) 115 FCR 409 referred to

Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209 referred to

Re Statewide Investments Ltd (In liq) (1981) 6 ACLR 265 referred to

Ford HAJ, Austin RP and Ramsay IM, Ford’s Principles of Corporations Law (Butterworths Australia, looseleaf service)

IN THE MATTER OF AUSTRALIAN CAPITAL RESERVE LIMITED (IN LIQUIDATION) (ACN 089 189 502); APPLICATION OF GREGORY WINFIELD HALL & PHILIP PATRICK CARTER AS JOINT & SEVERAL LIQUIDATORS OF AUSTRALIAN CAPITAL RESERVE (IN LIQUIDATION) (ACN 089 189 502)

NSD 1893 of 2008

JACOBSON J

9 DECEMBER 2008

SYDNEY

IN THE MATTER OF AUSTRALIAN CAPITAL RESERVE LIMITED (IN LIQUIDATION) (ACN 089 189 502)

THE COURT ORDERS THAT:

1.                  The Originating Process be made returnable instanter.

2.                  The Plaintiffs have leave to file in Court the affidavit of Gregory Winfield Hall sworn on 8 December 2008.

3.                  Confidential Exhibit GWH-2 to the affidavit of Gregory Winfield Hall sworn on 8 December 2008 and filed in this proceeding be confidential, and no person is to have access to those documents without an order of the Court.

4.                  Pursuant to s 511(1) of the Corporations Act 2001 (Cth), the Plaintiffs would be justified in not declaring any interim or final dividend to ordinary unsecured creditors of ACR that would involve distribution of funds received or to be received under the Agreement until expiry of a period of at least six months following the respective dates of receipt of those funds.

5.                  The Plaintiffs' costs of and incidental to the Originating Process be paid as expenses of ACR's winding up.

In these orders:

ACR means Australian Capital Reserve Limited (In Liquidation) (ACN 089 187 502).

Agreement means the "Receivables Acquisition Deed" dated 21 September 2007 made between ACR, Becton Investment Management Limited and Becton Property Group Limited, as amended by the "Amending Deed" dated 2 December 2008 made between those same parties.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.

IN THE MATTER OF AUSTRALIAN CAPITAL RESERVE LIMITED (IN LIQUIDATION) (ACN 089 189 502)

REASONS FOR JUDGMENT

1                     This is an application by the liquidators of Australian Capital Reserve Limited (in Liquidation) (ACR) for an order under s 511(1) of the Corporations Act 2001 (Cth) that they would be justified in not declaring any interim or final dividend to ordinary unsecured creditors of ACR that would involve distribution of funds received or to be received under an agreement described below (the Agreement) until the expiry of a period of at least six months following the respective dates of receipt of those funds.

2                     The factual material which the liquidators put before me in support of the application is contained in an affidavit of Mr Gregory Winfield Hall sworn 8 December 2008.  The affidavit exhibits a large number of documents contained in Exhibit GHW1.  A number of confidential documents, including a confidential statement of Mr Hall are contained in Confidential Exhibit GWH2.  Mr T F Bathurst QC, who appears for the liquidators, concedes that it is appropriate for me to refer to so much of the confidential statement as is necessary to disclose my reasons for judgment.

3                     Notwithstanding the bulk of the evidentiary material, the essential facts may be stated shortly.  ACR was the fundraising vehicle for Estate Property Group Limited group of companies (EPG Group) which carried on the business of residential property development.  ACR raised funds from the public in a note issue and on-lent the funds to various companies in the EPG Group.  ACR went into voluntary administration on 28 May 2007 with liabilities of approximately $335 million, of which approximately $332 million was owed to a trustee for the note holders. 

4                     In September 2007, a series of agreements were entered into between the administrators of the EPG Group and Becton Investment Management Limited in its capacity as the trustee of the Becton Everest Fund (Becton), the effect of which was that Becton took control of the property development part of the EPG Group. 

5                     The structure of the Becton transaction was set out in a Heads of Agreement dated 30 August 2007 between, inter alia, ACR and Becton.  One of the agreements entered into pursuant to the Heads of Agreement was a Receivables Acquisition Deed.  That Deed, together with the Heads of Agreement and certain contracts for sale of land at Villawood and Werrington, provided for certain payments to be made by Becton to ACR.  The payments were to be made in three instalments, the last of which fell due on 1 December 2008.  The amount due under the final instalment was nearly $54 million.

6                     On 18 November 2008, Becton wrote to the liquidators of ACR proposing to defer payment of the final instalment and to make payment of it as follows: 

We propose that the Final Payment be paid in the following instalments:

·         The first instalment of $17,500,000 on or before Wednesday, 3 December 2008;

·         The second instalment of $15,000,000 on or before Thursday, 30 April 2009;

·         The third instalment of $10,000,000 on or before Tuesday, 30 June 2009; and

·         The fourth instalment of $11,297,733.67 (plus interest) on or before Wednesday, 30 September 2009.

7                     In the course of his submissions this morning, Mr Bathurst effectively acknowledged that the letter from Becton was not a confidential exhibit.  However, shortly before giving my reasons for judgment, Mr Pike, who appears with Mr Bathurst, made an application to me for an order for confidentiality for that letter. 

8                     Notwithstanding what appears under [8] of the letter, it seems to me that it is not appropriate for me to make a confidentiality order under s 50 of the Federal Court of Australia Act 1976 (Cth) in relation to the letter, because the interests of justice require me to be able to state my reasons with sufficient transparency for them to be understood by persons such as note holders who would wish to be fully apprised of the reasons for the orders that I propose to make.  I will, therefore, refer to so much of the letter of 18 November 2008 as is necessary to give my reasons for judgment. 

9                     The letter of 18 November 2008 included a summary of the unsuccessful efforts made by Becton to fund the payment of the final instalment due under the Receivables Acquisition Deed on its due date of 1 December 2008.  Those efforts included negotiations by Becton for a loan facility which was subsequently rejected, and discussions with other proposed replacement financiers.  I do not need to refer in detail to that portion of the letter.  However, the letter went on to state that Becton was then in advanced discussions with other financiers which would enable Becton to be able to meet the payment of $17.5 million proposed to be made on 3 December 2008. 

10                  As to the payment of the second and subsequent proposed instalments, the letter stated as follows:

As a property developer the nature of Becton’s operating cash flow is lumpy.  Cash inflows are not received until a project is completed and settlement achieved.  Becton expects to complete and settle several projects in 2009 and, in addition, has elected to sell various other property assets.  The result is a cash flow which Becton believes amply demonstrates its ability to meet its obligations under the proposal set out herein.  As discussed with you, in this connection Becton has commissioned Deloitte to examine that cash flow and its underlying assumptions in detail in order to allow them to provide independent assurances to you and ACR as to the ability of Becton to meet its obligations under the payment proposal set out above.  We anticipate Deloitte’s final report to be ready for perusal by you on Monday, 24 November 2008.

11                  The liquidators entered into an Amending Deed on 3 December 2008 which amended the terms of the Receivables Acquisition Deed so as to provide for the payment of the final instalment along the lines of the proposal contained in the letter of 18 November 2008.  The terms of payment due under the Amending Deed are set out in [32] of Mr Hall’s affidavit which I will set out in full:

The payments to be made by [Becton] to ACR under the Amended [Deed] were as follow: 

(a)    $10,188,164 due on 3 December 2008;

(b)    $15,000,000 due on 30 April 2009;

(c)    $10,000,000 due on 30 June 2009;

(d)    $17,862,039.19 payable in accordance with clause 3.4 of the Amended [Deed] (pursuant to which that amount net of the Liquidators’ estimate of the likely dividend ultimately payable to [Becton] is payable on 30 September 2009, with the balance to be set off against dividends payable to [Becton] when declared).

12                  Prior to executing the Amending Deed, the committee of creditors of ACR approved its execution.  It is this Deed which constitutes the Agreement which I referred to in the opening paragraph of my reasons for judgment.  The Agreement provides for “solvency certificates” to be delivered by the officers of Becton to the liquidators and those certificates have been given. 

13                  The amount of $17.5 million was paid by Becton on 3 December 2008 in accordance with the Agreement.  However, although the liquidators previously paid two interim dividends to creditors of ACR out of funds received from Becton pursuant to the Receivables Acquisition Deed the liquidators have not declared a further interim dividend utilising the $17.5 million received from Becton on 3 December 2008.  On that date, that is 3 December 2008, the liquidators wrote to note holders updating them as to the position with Becton.  The letter stated inter alia:

There are some issues relating to our ability to distribute those funds to note holders and creditors.

            The letter went on to say that, as a result, the liquidators proposed to seek directions from the    Court concerning the timing of further distributions to note holders and creditors. 

14                  In Re Ansett Australia Ltd (No 3) (2002) 115 FCR 409 Goldberg J reviewed all of the relevant authorities relating to the principles which govern the exercise of the Court’s power to give directions to a liquidator.  His Honour stated the principles which emerged from the authorities at [65].  The effect of what Goldberg J said was that there must be something more than the making of a business or commercial decision before a Court will give directions.  It may be a legal issue or an issue of power, propriety or reasonableness.  In the present case I am satisfied that an issue of reasonableness arises in accordance with the principles stated by Goldberg J. 

15                  It arises because the liquidators have a primary duty to expedite the winding up and to bring it to an early conclusion.  Here the liquidators seek to extend the winding up by deferring payments to note holders and creditors.  There is sufficient authority for the course that I propose to take in the decision of Master Lee in Re Statewide Investments Ltd (In liq) (1981) 6 ACLR 265 to which Goldberg J referred in Ansett at [50]. 

16                  I have been told this morning that approximately 500 note holders have written to the liquidator opposing the deferral of payment of dividends out of the funds received from Becton, but against this I have evidence that the liquidators have formed the view that there is a real possibility that Becton may not be able to remain in existence as a going concern.  That is not to say that Becton will not survive, but the liquidators’ view is based upon matters referred to in the confidential statement.  It is sufficient to say that the liquidators consider amongst other things that Becton’s survival depends upon certain assumptions being fulfilled.  Of course, it may well be that those assumptions are realised but if they are not it may be that any payment made to note holders would be challenged as a preference so that the liquidators would be liable to disgorge funds which would already have been paid out to note holders.

17                  Having regard to this, it seems to me to be appropriate for the liquidators to seek the guidance of the Court as to whether it is reasonable to postpone the payment of further dividends in the manner contemplated and, accordingly, I propose to make orders in accordance with the draft short minutes provided to me by counsel.

18                  I should add that in making these orders, I have taken into account a matter not referred to by Mr Bathurst this morning.  In Ford’s Principles of Corporations Law (Butterworths Australia, looseleaf service) at [27.182], the learned authors point out that under s 511 of the Act, the Court’s power is more limited than under s 479(3).  The authority for that proposition is a decision of Young J in Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209 at 212.  His Honour there referred to 511(2) of the Act which provides that the Court may accede to an application if it is satisfied that the exercise of the power will be “just and beneficial.”

19                  In Dean-Willcocks, Young J was of the view that this means that the Court has a discretion as to whether the making of an order under s 511 will be of advantage in the liquidation.  For the reasons set out above, I am of the view that this test is satisfied.

20                  I should also note Young J’s consideration, in Dean-Willcocks at 212 to 213, of the question of whether it is appropriate to make an application such as this ex parte.  His Honour observed at 213 that it is proper for such an application to be made ex parte, as has been done in the present case.  I will therefore make orders in terms of the short minutes of order, as amended, which I will sign and date.

Associate:

Dated:         15 December 2008