FEDERAL COURT OF AUSTRALIA
Deputy Commissioner of Taxation v Soiland Pty Ltd (In Liq) [2010] FCA 168
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Citation: |
Deputy Commissioner of Taxation v Soiland Pty Ltd (In Liq) [2010] FCA 168 |
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Parties: |
DEPUTY COMMISSIONER OF TAXATION v SOILAND PTY LTD (IN LIQUIDATION) |
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File number: |
WAD 213 of 2009 |
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Judge: |
BARKER J |
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Date of judgment: |
2 March 2010 |
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Catchwords: |
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Legislation: |
Corporations Act 2001 (Cth) ss 471A(1A)(d), 466(2) Federal Court Act 1976 (Cth) s 35A(5) |
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Cases cited: |
Brolrick Pty Ltd v Sambah Holdings Pty Ltd (2001) 164 FLR 91; [2001] NSWSC 1171 Décor Corp Pty Ltd v Dart Industries Inc (1993) 33 FCR 397 Dooney v Henry (2000) 74 ALJR 1289; [2000] HCA 44 Gail Freeman and Co Pty Ltd v Deputy Commissioner of Taxation [2007] FCA 1381 Harris v Caladine (1991) 172 CLR 84; [1991] HCA 9 HVAC Constructions (Qld) Pty Ltd v Energy Equipment Engineering Pty Ltd (2002) 44 ACSR 169; [2002] FCA 1638 Lane Cove Council v Geebung Polo Club Pty Ltd (in liquidation) (No 2) (2002) 167 FLR 175; [2002] NSWSC 118 Lightburn Pty Ltd v Kama Power Products Pty Ltd [2003] SASC 43 Re Rock Bottom Fashion Market Pty Ltd (in liquidation) [2000] 2 Qd R 573; [1997] QCA 399 Re Wakim; ex parte McNally (1999) 198 CLR 511; [1999] HCA 27 Rodgers v CJS Panels Pty Ltd [2001] VSC 470 Vynotas Pty Ltd v Mystic Crystals Franchises (Aust) Pty Ltd [1999] QCA 473 Walker v Midlink Nominees Pty Ltd (2000) 22 WAR 318; [2000] WASC 112
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Date of hearing: |
18 February 2010 |
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Place: |
Perth |
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Division: |
GENERAL DIVISION |
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Number of paragraphs: |
90 |
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Counsel for the Plaintiff: |
Mr JC Vaughan |
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Solicitor for the Plaintiff: |
Australian Taxation Office |
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Counsel for the Defendant: |
Mr J Birman |
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Solicitor for the Defendant: |
Birman & Ride |
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IN THE FEDERAL COURT OF AUSTRALIA |
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WESTERN AUSTRALIA DISTRICT REGISTRY |
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GENERAL DIVISION |
WAD 213 of 2009 |
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DEPUTY COMMISSIONER OF TAXATION Plaintiff
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AND: |
SOILAND PTY LTD (IN LIQUIDATION) Defendant
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JUDGE: |
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DATE OF ORDER: |
2 MARCH 2010 |
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WHERE MADE: |
PERTH |
THE COURT ORDERS THAT:
2. Ms de Hollander must indemnify the defendant for all costs that it may be ordered to pay in respect of the application for review of the orders made by District Registrar Jan on 23 December 2009 and must, by 4 pm on Tuesday, 16 March 2010, provide a bank guarantee in an amount of $30,000 in a form satisfactory to the plaintiff or the Court to secure that indemnity.
3. The costs of the application for approval are costs in the cause on the application for review.
4. By 4 pm on Tuesday, 16 March 2010 Ms de Hollander must:
(1) submit a report as to affairs in accordance with s 475 of the Corporations Act 2001 concerning the defendant, such report to be:
(a) provided to the defendant's liquidator; and
(b) served on the plaintiff; and
(2) deliver to the defendant's liquidator in accordance with s 530A(1) of the Corporations Act 2001 all books (including financial reports or financial records) in her possession, custody or under her control that relate to the defendant.
5. Pursuant to s 486 of the Corporations Act 2001 the plaintiff may inspect and take copies of the books that relate to defendant as delivered up to the defendant's liquidator.
6. By 4 pm on Tuesday, 16 March 2010 the defendant:
(1) identify those affidavits previously filed on which it intends to rely in support of the application for review; and
(2) file and serve any further affidavits it intends to rely on in support of the application for review.
7. By 4 pm on Tuesday, 30 March 2010 the plaintiff:
(1) identify those affidavits previously filed on which it intends to rely in opposition to the application for review; and
(2) file and serve any further affidavits it intends to rely on in opposition to the application for review.
8. By 4 pm on Tuesday, 6 April 2010 each party inform the other party in accordance with Order 14 rule 9 of the Federal Court Rules as to whether the party requires the attendance for cross-examination of any of the deponents of the other party's affidavits.
9. By 4 pm on Wednesday, 7 April 2010 the defendant file and serve an outline of submissions, together with a list of authorities, in support of the application for review.
10. By 4 pm on Monday, 12 April 2010 the defendant file and serve an outline of submissions, together with a list of authorities, in opposition to the application for review.
11. The application for review is listed for hearing on Thursday, 15 April 2010 at 10.15 am.
12. The parties have liberty to apply on 48 hours notice.
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 Federal Law Search on the Court’s website.
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IN THE FEDERAL COURT OF AUSTRALIA |
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WESTERN AUSTRALIA DISTRICT REGISTRY |
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GENERAL DIVISION |
WAD 213 of 2009 |
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BETWEEN: |
DEPUTY COMMISSIONER OF TAXATION Plaintiff
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SOILAND PTY LTD (IN LIQUIDATION) Defendant
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JUDGE: |
BARKER J |
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DATE: |
2 MARCH 2010 |
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PLACE: |
PERTH |
REASONS FOR JUDGMENT
The issue
1 The issue the subject of this decision is whether Joanne Karen de Hollander, sole director and secretary of the defendant company (Soiland), which is in liquidation, should be granted leave nunc pro tunc under s 471A(1A)(d) of the Corporations Act 2001 (Cth) (CA) to cause the defendant company to apply to the Court for review of orders made by the District Registrar on 23 December 2009 that the defendant company be wound up in insolvency.
winding up order
2 On 23 December 2009, District Registrar Jan, on the application of the Deputy Commissioner of Taxation as plaintiff, ordered that Soiland Pty Ltd (ACN 099 027 960) be wound up. The formal terms of the order were that:
1. Soiland Pty Ltd be wound up in insolvency under the provisions of the Corporations Act 2001 (Cth).
2. Neil Raymond Cribb, of RSM Bird Cameron Partners, 8 St George’s Terrace, Perth, in the State of Western Australia, be appointed as liquidator of the affairs of the said company.
3. The Plaintiff’s costs of this application be fixed in the sum of $1,048.00 and be reimbursed in accordance with subsection 466(2) of the Corporations Act 2001 (Cth).
3 On 23 December 2009 immediately preceding the making of the winding up order, District Registrar Jan dismissed an adjournment application under s 440A(2) of the CA, made on behalf of Graeme Trevor Lean, who was then the recently appointed administrator of the company. The District Registrar in his oral reasons for decision (subsequently reduced to writing and circulated to the parties) noted that one of the reasons for seeking the adjournment was to allow the administrator time to investigate the affairs of the company and also to consider whether a deed of company arrangement (DOCA) could be entered into.
4 The District Registrar formed the view in light of the materials provided to him that the company was not only deemed to be insolvent but was actually insolvent with total liabilities as of 23 December 2009 in the vicinity of $19 million. He formed the view that it was not in the interests of the creditors to adjourn the application and so the application to adjourn was dismissed.
5 So far as the interests of the creditors was concerned, the District Registrar in his reasons at [2] stated that:
Yesterday, the administrator advanced the argument that creditors would benefit if the Defendant were given more time (in the region of 2 to 3 years) to ensure that the zoning of the land beneficially owned by the Defendant in the Welshpool area is changed to industrial and thus would increase the value of the land by about 15% to a value of around $10 million instead of around $6.65 million. However, as of today’s date it seems that that line of argument can no longer be sustained as it now appears that the land can presently be sold as industrial land. The arguments today on behalf of the Administrator are that if a DOCA were entered into:
(i) the related companies’ debt will be subordinated;
(ii) the Land will be either sold or mortgaged to secure an additional loan of $1,000,000; and
(iii) the independent creditors will be paid in full by 30 June 2010.
6 The District Registrar in finding that it was not in the interests of the creditors to adjourn the application noted a number of things, including:
· That there were inconsistencies in the affidavit material, [including that Ms De Hollander] gave evidence on 18 December 2009 that the company was solvent and then three days later on 21 December 2009 certified that it was insolvent or likely to be insolvent.
· Not a lot of weight should be attached to the business information provided by the Defendant particularly as the books of account had not been maintained on an up to date basis.
· The tentative proposal set out in the administrator’s affidavit was not firm and may not be able to be realised as it was dependent on the securing of additional funds.
· There did not appear to be any unrelated creditor support for the proposal and the major unrelated creditor did not support the proposal.
· The defendant company is no longer trading and there was no satisfactory evidence to suggest that it could be revived or resurrect itself by commencing to trade again.
· Weight should be given to the plaintiff’s concerns about the way the defendant has been failing to pay its tax obligations and its failure to lodge various documents required by law.
application for leave to review decision of the district registrar
7 Section 471A(1) CA provides that while a company is being wound up in insolvency or by the Court, a person cannot perform or exercise and must not purport to perform or exercise a function or power as an officer of the company.
8 Section 471A(1A) provides relief from this prohibition in that subs (1) does not apply to the extent that the performance or exercise or purported performance or exercise is:
(a) as a liquidator appointed for the purposes of the winding up; or
(b) as an administrator appointed for the purposes of an administration of the company beginning after the winding up order was made; or
(c) with the liquidator’s written approval; or
(d) with the approval of the Court.
9 It is accepted that upon the making of a winding up order it is no longer open to an officer of the company, such as Ms de Hollander in this case, to commence an appeal proceeding to set aside the winding up order without the approval of the liquidator or the Court, as once was possible under the common law: see Re Rock Bottom Fashion Market Pty Ltd (in liquidation) [2000] 2 Qd R 573; [1997] QCA 399; Vynotas Pty Ltd v Mystic Crystals Franchises (Aust) Pty Ltd [1999] QCA 473; Walker v Midlink Nominees Pty Ltd (2000) 22 WAR 318; [2000] WASC 112; Brolrick Pty Ltd v Sambah Holdings Pty Ltd (2001) 164 FLR 91; [2001] NSWSC 211; Rodgers v CJS Panels Pty Ltd [2001] VSC 470; HVAC Constructions (Qld) Pty Ltd v Energy Equipment Engineering Pty Ltd (2002) 44 ACSR 169; [2002] FCA 1638 (HVAC).
10 In HVAC, French J noted, at [36], that he did not exclude the possibility that the directors of the company may themselves have standing to appeal against a winding up order in their own names although the observations of Callinan J in Dooney v Henry (2000) 74 ALJR 1289; [2000] HCA 44, at ALJR 1295, seemed inimical to that proposition.
11 In HVAC, French J also considered that the requirement of the Court’s approval was not affected by the character of the proceedings as an application for review of the Registrar’s decision: see [37].
12 French J at [40], having referred to Harris v Caladine (1991) 172 CLR 84; [1991] HCA 9 and other authorities noted that the winding up order made by the District Registrar in the case before him was made pursuant to delegated jurisdiction conferred on the Court by the CA, which is a law of the Commonwealth made pursuant to referral by the States under s 51(xxxvii) of the Australian Constitution to overcome the difficulties identified in Re Wakim; ex parte McNally (1999) 198 CLR 511; [1999] HCA 27. His Honour then noted at [41]:
There may conceivably be a question whether s 471A could validly restrict the power of an officer of the company, in the name of the company, to seek review by a judge of a registrar’s order winding up the company. No such contention was advanced in this case and I am inclined to think that, given the power conferred on the Court by s 471A to approve the exercise by a director of such functions as are necessary to apply for review, the combined effect of s 35A [of the Federal Court Act 1976 (Cth)] and s 471A does not compromise the constitutionally required degree of judicial supervision and control of the registrar’s delegated jurisdiction. I accept, however, that that constitutional imperative may be a relevant consideration in determining whether approval should be granted.
13 Thus French J proceeded on the basis, as stated at [42], that approval of the Court is necessary for a director of a company to apply for review of a registrar’s order winding up the company as it is to an appeal against a judge’s order to that effect.
14 It is not been argued before me that the requirement stipulated by s 471A of the CA is invalid to the extent that it requires the Court’s approval to the commencement of a proceeding, in this case, at the instance of Ms de Hollander, to review the District Registrar’s order winding up the defendant company.
15 I proceed then on the same basis, as did French J in HVAC, that such approval is necessary but that the “constitutional imperative”, as French described the availability of a review proceeding, may be a relevant consideration in determining whether approval should be granted. Counsel for the plaintiff did not submit otherwise and indeed in his written submissions, at [16], expressly noted that it is a relevant factor as identified by French J.
The factors the Court should consider before granting approval of the review application
16 The strength of the case to be argued on review, the protection of the assets of the company and the ‘constitutional imperative’ of the right to review all need to be considered by the Court on an application for approval under s 471A(1A)(d) CA.
17 The protection of the assets of the company is generally considered to be a relevant factor which the Court will take into account in determining whether it should grant approval to a proceeding designed to set aside a winding up order. It is recognised that if that proceeding is unsuccessful, the company may be exposed to a costs order which will prejudice the position of creditors generally: see for example Rodgers v CJS Panels Pty Ltd; Lane Cove Council v Geebung Polo Club Pty Ltd (in liquidation) (No 2) (2002) 167 FLR 175; [2002] NSWSC 118 (Geebung Polo Club); HVAC at [43]. As French J noted in HVAC, at [43], the weight to be given to this consideration and the mechanisms for minimising the risk to creditors will vary according to the circumstances of each case.
18 In an appropriate case, approval may be given nunc pro tunc after the lodging of an application to a named officer of the company, and conditions may be attached to the approval that require that officer to be responsible for the costs: see Brolrik Pty Ltd v Samba Holdings Pty Ltd at FLR 97 – 98; HVACat [43].
19 In relation to the protection of the resources of the company and the minimising of the risk to creditors, Barrett J in Geebung Polo Club at [13], rejected a submission that two matters were necessarily relevant to the decision whether or not to give approval:
1. the existence of a prima facie case; and
2. that the costs of the application can be met from the assets of the company.
While his Honour accepted the first factor he said that the formulation of the second seemed to him to misconstrue the position. His Honour stated:
The fact that there may be in the hands of the liquidator sufficient funds to meet the costs of the application has nothing to do with the kinds of safeguard to which I have just referred. It is necessary to see either that the company is in reality solvent or that its assets will be protected from claims for costs unless and until it emerges that the winding up is not to continue. Neither of those things is shown here, even though Mr George has led evidence of ownership of substantial real property by Geebung. Even if a prima facie case on the merits is shown, Mr La Nauze has not satisfied what I regard as an indispensable prerequisite to the grant of approval under s 471A(1A)(d). His application must therefore be refused.
20 The question of the existence of a “prima facie case” is generally accepted. This is consistent with a factor that ordinarily needs to be demonstrated to satisfy a court that leave to appeal should be granted, where such leave is required, namely, the strength of the case to be argued: see for example Décor Corp Pty Ltd v Dart Industries Inc (1993) 33 FCR 397. The co-relationship between factors relevant in relation to an appeal and for approval to seek review of a registrar’s winding up order were also noted by French J in HVACat [44]. As noted already, French J accepted that a relevant factor in favour of the grant of leave in a review of a winding order case “is that the director seeks to invoke not the appellate jurisdiction of the Court but its original jurisdiction”: see [44].
21 In relation to the strength of the case to be argued on review, in the context of s 471A(1A)(d), where the question of solvency is the ultimate critical consideration, one would not have thought, as a matter of principle, that it is necessary upon the application to the Court for its approval to seek review of the Deputy Registrar’s winding up order to establish at that point that the company is solvent. As Besanko J said in Lightburn Pty Ltd v Kama Power Products Pty Ltd [2003] SASC 43, at [27], albeit in relation to an application for approval to appeal, it would “be putting to high an onus on an applicant for approval under s 471A(1)(d) and involve a determination of the very issue which, in many cases will be the central issue on appeal”.
22 Besanko J went on, at [31] and [32] to comment on the merits of the case before him where no material was put forward to establish the solvency of the company or to rebut the statutory presumption of solvency. He noted on the material put before the Master an order winding up the company was “inevitable”. At [33], Besanko J stated:
To my mind, the failure to put any clear or intelligible evidence before the Master of the company's financial position means that any appeal against his decision must inevitably fail.
For those reasons, the Court refused approval to appeal.
23 To similar effect, in Gail Freeman and Co Pty Ltd v Deputy Commissioner of Taxation [2007] FCA 1381, Dowsett J in short reasons for judgment refusing an appeal under s 471A of the CA, suggested that leave would not be given unless the Court was satisfied that a “viable ground of appeal” had been made out.
24 In the written and oral submissions of counsel for the plaintiff, the Deputy Commissioner of Taxation, counsel submits that the current application for review is “doomed to fail” and thus there is no utility in granting approval.
25 By contrast, in his written and oral submissions, counsel for Ms de Hollander says that before granting approval, the Court must be satisfied either that:
· the company is solvent – i.e. it is able to pay any costs incurred in respect of the review without prejudice to the creditors; or
· its assets will be safeguarded from any claims for the costs of the review.
In oral argument however, counsel for Ms de Hollander seemed to accept that there needs to be some viable ground of review going to the question of solvency.
26 In my view, putting the matter reasonably generally, along the lines of the authorities cited above, three matters are broadly relevant to the decision whether approval should be granted under s 471A(1A)(d). First, there should be made out a prima facie case or viable issue to be considered on a review. Secondly, it is necessary to show either that the company is in reality solvent or that its assets will be protected from claims for costs unless and until it emerges that the winding up is not to continue, so that the interests of creditors are not put at risk. Finally, it must also be borne in mind that the applicant seeks to invoke not the Court’s appellate jurisdiction, but its original jurisdiction on “review”.
THE CURRENT POsiTION OF THE COMPANY
27 Counsel for the Deputy Commissioner accepts that if there were to be a review of the District Registrar’s decision in winding up the company that review proceeding would consider de novo, that is to say afresh, whether there should be a winding up of the company. There has been much recent activity by persons or entities related to the company to remove all unrelated unsecured creditors from the list of creditors of the company. I will now set out some of the current relevant financial position of the company.
28 In relation to the application by Ms de Hollander for the Court’s approval to seek review of the District Registrar’s winding up order, a number of affidavits have been received by and formally read to the Court. Ms de Hollander relies upon her affidavits sworn 19 January 2010 and 17 February 2010 and the affidavit of Peter Nicholas Laurier, sworn 17 February 2010. The Deputy Commissioner relies upon the affidavit of Betty‑Jane Logue sworn 18 February 2010 and the affidavit of the liquidator, Neil Raymond Cribb, sworn 17 February 2010. At the hearing, I received the liquidator’s affidavit over the objections of counsel for Ms de Hollander that it was not relevant. In my view, the matters raised in the liquidator’s affidavit as discussed later in these reasons are relevant and probative. Each of the parties also generally refer to and rely upon affidavits lodged in the course of the proceeding before the District Registrar, including the earlier affidavit material of Ms de Hollander.
29 Following the hearing, pursuant to leave granted by me to do so (albeit after the time set), a number of further affidavits were filed on behalf of Ms de Hollander and are relied upon by her in support of her application. They include the affidavit of Steven Masel, sworn 23 February 2010, the affidavit of Peter Nicholas Laurier, sworn 22 February 2010 and a further affidavit of Ms de Hollander, sworn 23 February 2010, as well as an affidavit of Tobias Christopher Young, sworn 22 February 2010.
30 The affidavit material before me discloses the following changed circumstances since the District Registrar made the winding up order in respect of the company:
· On or about 9 February 2010, Mr Laurier, the bookkeeper employed by Stone Traders Pty Ltd, a company related to the defendant company, caused Business Activity Statements (BASs) for May to December 2009 for the defendant company, which he had prepared in reliance on an electronic copy of the defendant’s general ledger, which was stored on a computer system belonging to his employer, to be sent by mail to the Australian Taxation Office (ATO). Mr Laurier had previously been responsible for preparing BASs on behalf of the defendant prior to May 2009 and lodging them with the ATO.
· Mr Laurier also prepared a summary of the defendant’s BAS (GST) liabilities, IAS liabilities (amounts withheld from salaries and wages) and BAS (input) credit entitlements to the ATO. He purported to include on the summary a total of the interest and penalties imposed by the ATO and reported on Soiland’s running balance account with the ATO a total of $141,561.40, imposed at about 27 January 2010. On the basis that Mr Laurier was advised that a sum of $475,000 had been paid or was about to be paid through Australia Post to the ATO on account of the amount due, Mr Laurier determined that there was a credit balance (due to the defendant) of $7,776.60.
· On 9 February 2010, Ms de Hollander caused $475,000 to be paid to the ATO in what she considered to be satisfaction of the company’s liability to the ATO, namely $467,223.40, on the basis of advice given to her by Mr Laurier.
· Ms de Hollander has been informed by Jamie Pollock, a director of a related company, and her alternate director of Soiland, that he is in the process of negotiating a compromised amount to satisfy a debt owed to the Commissioner of State Revenue, which includes substantial discretionary penalties. She states she is in a position to satisfy this debt in full and will do so upon the conclusion of the current negotiations.
· Ms de Hollander also says that she understands from Jamie Pollock that arrangements have been made with Golder Associates to discharge the company’s debt of $87,420.69 and that Golder Associates has agreed to issue a credit note for this amount to Soiland.
· A sum of $11,000 being an outstanding account between the company and Philip Metcalfe has been paid in full by Stonetraders Pty Ltd, seemingly about 10 February 2010.
· An amount of $56,477.10 on account of invoices from Italia Stone Group has been paid by Stonetraders “on behalf of Soiland” on 11 February 2010.
31 In short, in very recent days, steps have been taken by persons or entities related to the defendant company to satisfy a range of unrelated unsecured creditors. I will return to the status of the amount due to the plaintiff Deputy Commissioner.
32 In relation to the other creditors not mentioned in this recent account of payments, being a range of related unsecured creditors and secured creditors, Ms de Hollander in her affidavit sworn 19 February 2010 confirms that:
· The defendant company’s sole asset is land at 665 Welshpool Road East, Wattle Grove being the whole of land in certificate of title volume 1601, folio 150.
· She believes, in reliance on annexures GTL2 and GTL3 of Mr Lean’s affidavit dated 22 December 2009, filed in support of the application for the adjournment that was dismissed by the District Registrar on 23 December 2009, and [8] – [11] and annexure GTL7 of that affidavit, that the land is worth $10,172,000.
· The secured creditors of the company include the mortgagee of the land, Walthamstow Pty Ltd, to the value of $2,644,468 (as at 13 November 2009). Walthamstow’s mortgages also secure guarantees by “the applicant” to third parties in the sum of $2,620,000 as at 13 November 2009. The guarantees relate to debts secured by first mortgages over land owned by third parties.
· The applicant, leaving aside the unsecured creditors referred to above in respect of whom a number of recent payments have been made, owes about $13 million to Soils Ain’t Soils (WA) Pty Ltd, Stonetraders Pty Ltd, AIK Corporation Pty Ltd, Formstone Corporation Pty Ltd, Sunbold Pty Ltd, Masterline Investments Pty Ltd, Soil and Contracting Pty Ltd and Sirmro Pty Ltd – all related unsecured creditors.
· Soils Ain’t Soils (WA) Pty Ltd, Soil and Contracting Pty Ltd and, states Ms de Hollander, “the applicant”, are prepared to vote for a DOCA in the form of a draft attached to her affidavit, to compromise their debts on the terms contained therein. (It goes without saying that the reference to “the applicant” being prepared to do this cannot be strictly considered correct as by reason of the winding up order, the liquidator and not Ms de Hollander must be prepared to vote in that way).
· The remaining unrelated secured creditors have also indicated that they are prepared to vote for the DOCA and to compromise their debts on the terms contained therein.
33 The position of Neil Raymond Cribb, the official liquidator, in relation to a number of these changed circumstances asserted by Ms de Hollander should also be noted. In his affidavit, sworn 17 February 2010, Mr Cribb relevantly states that:
· On 6 January 2010, he met with Mr Kevin Pollock and Mr Jeremy Birman of Birman & Ride, solicitors for Ms de Hollander, together with Mr Mike Edmondson of his office, Mr David Skender and Mr Tony Zaffino of McKenzie Moncrieff Lawyers advising him, as well as Mr Tobias Young of Birman & Ride.
· At the meeting, Kevin Pollock told him that he was a consultant or advisor to Ms de Hollander.
· During the meeting Mr Kevin Pollock told him that Ms de Hollander was overseas but would return during the coming week and would respond to his earlier letter to her of 4 January 2010.
· Subsequently he did not receive a response to that letter.
· On 21 January 2010, he received a telephone call from Kevin Pollock during which Mr Pollock told him, amongst other things, that Ms de Hollander would provide him with a report as to the affairs of the company by 25 January 2010.
· He did not receive that report by then.
· By letters dated 2 February 2010 to Ms de Hollander and Mr Pollock, he requested they provide him with things set out in the letter.
· On 8 February 2010, Mr Zaffino of McKenzie Moncrieff received an email from Mr Young of Birman & Ride in which Mr Young stated that Ms de Hollander was preparing a substantive reply to the letter of 4 January 2010 and that a number of documents and the information requested would be delivered by 17 February 2010.
· He required his solicitors to respond which they did by advising Birman & Ride, among other things, that Ms de Hollander and Mr Pollock must immediately attend to the matters set out in his letters of 4 January 2010.
· As of the date of making his affidavit on 17 February 2010, he had not received any further books or records of the company from Birman & Ride, save for the BASs, from Ms de Hollander or Mr Pollock in relation to the letters of 4 January 2010.
· He has informed the Australian Securities and Investment Commission (ASIC) of Ms de Hollander’s and Mr Pollock’s failure to comply with his requests.
· Since his appointment he has been provided with the following documents: financial statements for the years ending 30 June 2003, 2004, 2005 and 2006, and a tax return and general ledger for the year ending 2006; a copy of the licence pursuant to which the company is authorised to conduct a compost manufacturing and soil blending business in Wangara, Western Australia; a copy of an agreement between the company and the City of Wanneroo, concerning the licence; and copies of BASs for the month of June 2008 and the months of October 2008 to December 2009 inclusive.
· Of the financial statements provided, only those for the year ended 30 June 2004, have been signed by the company’s accountants. The others have not been signed.
· During the January 2010 meeting, Kevin Pollock told him words to the effect that all the BASs had been prepared and simply needed to be lodged.
· In response he told Kevin Pollock that the financial statements and records used to prepare the BASs should therefore be up to date and capable of being provided to him and he requested those financial statements to be provided to him.
· During a telephone conversation on 12 February 2010, Kevin Pollock told him that the “motherboard” of the computer system which stored the financial information used to prepare the BASs had suffered a malfunction and for that reason the information could not be provided to him until it was recovered from the computer.
· As at the date of making the affidavit, he has not been provided with any documents or records which were used to prepare the BASs.
· All the BASs were lodged after his appointment and neither he nor his staff were involved in the preparation or lodgement of any of the BASs.
· He does not know who lodged the BASs and did not authorise their lodgement.
· Upon his review of the BASs apparently lodged in the name of Mr Peter Laurier, he has ascertained the following information:
(a) The company incurred or paid wages up until June 2009.
(b) The BASs have been prepared on an accruals basis.
(c) The company continued to earn income totalling $709,819 from July 2009 to December 2009 inclusive.
(d) The company made non‑capital purchases between July 2009 and December 2009 inclusive, totalling $6,286,454.
(e) The company has claimed GST credits worth $551,831 in relation to the period from July 2009 to December 2009 inclusive.
· He is unable to determine whether the sales figures represent cash received or debtors; and whether the expense figures represent expenses actually paid or creditors, of which he is presently unaware.
· To the extent the sales figures represent debtors, he considers those debtors would be an asset of the company which would be investigated and recovered.
· On 16 February 2010, he with Mr Mike Edmondson of his firm attended at the premises of 665 Welshpool Road, Wattle Grove at which Kevin Pollock had told him the company’s books and records were stored. A person named Deanne had told him that she was employed by Stonetraders Pty Ltd, trading as Soils Ain’t Soils, and that she had been told not to permit him to inspect any records.
34 Mr Cribb, in his affidavit, also deals with the land referred by Ms de Hollander in her earlier affidavits. In Ms de Hollander’s affidavit, sworn 19 January 2010, she says she believes the land is worth $10,172,000 having regard to certain annexures and paragraphs of Mr Lean’s affidavit dated 23 December 2009, sworn when Mr Lean was the administrator of the company. Mr Cribb refers to Mr Lean’s affidavit and in particular annexure GL6. It is a deed executed by Wattlegrove Commercial Pty Ltd which company under a deed holds the land in trust for the defendant company. Wattlegrove Commercial Pty Ltd have charged the land in favour of Walthamstow Pty Ltd and as a result Walthamstow now has 8 registered mortgages over the Wattle Grove property.
35 Mr Cribb says that as the result of his further investigations and discussions with a representative of Walthamstow, he has ascertained that Walthamstow holds registered mortgages to secure the mortgagor’s obligations to it in relation to loans and guarantees totalling approximately $3,519,000 in value and that $899,000 was paid at the defendant company’s direction, and of that amount, $201,663.66 was paid directly to Stone Traders Pty Ltd by Walthamstow.
36 Mr Cribb says that at the January meeting, Kevin Pollock told him that the land had been transferred by the company to Wattlegrove Commercial Pty Ltd in order to obtain finance since the company could not raise finance in its name.
37 Mr Cribb also refers to annexure GTL3 to Mr Lean’s affidavit which is a copy of a valuation of the land. At [8] of Mr Lean’s affidavit Mr Lean deposes that the valuation is $6,700,000. Mr Cribb says that by letter dated 6 January 2010 to Wattlegrove Commercial Pty Ltd he sought information regarding the loans and guarantees secured by Walthamstow’s mortgages. He has not yet received any response to his inquiries.
38 On 9 February 2010, he received, following a request from his solicitors, a transfer of land form executed by Wattlegrove Commercial Pty Ltd although the form now needs modification due to an omission on the form of a registered encumbrance.
39 Mr Cribb, in his affidavit, also reveals the results of inquiries to date in relation to the defendant company’s business. This includes advice from Mr Kevin Pollock at the January meeting that in about July 2009 employees of the defendant company were transferred to Stone Traders, that some motor vehicles owned by the company were sold and that Stone Traders leases the land pursuant to a written release agreement. Mr Pollock also told him that the company no longer trades and that it ceased trading in about mid‑2009. He has since been pursuing inquiries with Stone Traders concerning its dealings involving the company’s business and assets.
40 As to the proposed DOCA referred to by Ms de Hollander, Mr Cribb says that during the January meeting, Mr Birman and Kevin Pollock said that a DOCA may be proposed and asked whether he would be supportive of it. He told them that he would need to consider the terms of any proposed DOCA and he would only support it and seek to appoint an administrator over a company to facilitate the implementation of a DOCA if he considered that it was in the best interests of the creditors and could be certain that it would provide fully for costs and unsecured creditors unrelated to the Pollock family with a return of 100 cents in the dollar plus interest.
41 On 10 February 2010, Kevin Pollock told him in a telephone conversation that it was not possible to provide funds necessary to secure 100 cents in the dollar payment to unsecured creditors unrelated to his family and that the company’s unsecured creditors unrelated to the Pollock family would be paid in full. He did not indicate that he would be paying those creditors.
42 As to the lodgement of the BASs for the period July 2009 to December 2009, Mr Cribb says the effect appears to be that a GST credit would arise in respect of that period totalling $551,831. He says that since his appointment he has received correspondence from various persons claiming to be creditors for debts alleged to have arisen both before and after his appointment. He has been unable to verify any of these claims. He is therefore unable to form a view as to the liability position of the company.
43 Mr Cribb says he then became aware of the payments of $475,000 to the ATO, the payment to Philip Metcalfe and the payment to Italia Limestone. He accepts that, based on these payments, it appears that efforts have been made to pay the company’s unsecured creditors unrelated to the Pollock family.
44 However, Mr Cribb also points out that since his appointment his investigations have revealed the existence of two secured creditors additional to those previously listed who have registered charges over the company’s assets. These are Skyvale Nominees Pty Ltd (Skyvale) and Police & Nurses Credit Society Ltd. To the best of his knowledge no mention of the secured creditors was previously made by Mr Jamie Pollock, Mr Kevin Pollock or Mr Birman, nor are they referred to in the affidavits of Mr Lean sworn 21 and 23 December 2009, or the affidavit of Ms de Hollander filed in this proceeding.
45 By letter dated 14 January 2010, Skyvale informed Mr Cribb that its charge secured guarantees given by the defendant company to secure a repayment of $6,674,639.58 owed by ZGTeek Pty Ltd (formerly known as Green Teak Pty Ltd) to Skyvale.
46 Mr Cribb also reveals that he was requested by letter dated 12 February 2010, from the solicitors for Ms De Hollander, to provide his written approval to the lodgement and prosecution of an application for review of the District Registrar’s orders winding up the company. Mr Cribb says he considered that request and decided not to not to give his written approval for the following reasons:
(a) The company does not have sufficient assets to fund the application and Ms De Hollander has offered no undertaking as to costs.
(b) He would be in a position of conflict in approving the proposed application.
(c) He has not been provided with sufficient information about the affairs of the company which would allow him to determine:
· whether the company is solvent;
· the number and value of all the company’s creditors; and
· whether the deed of company arrangement deposed to in Ms De Hollander’s affidavit sworn 19 January 2010 and filed in these proceedings, or any deed of company arrangement proposal, is in creditors’ best interests.
(d) The list of creditors deposed to in Ms De Hollander’s affidavit may no longer be accurate or complete.
47 Mr Cribb finally notes a number of investigations that are continuing and matters that require further and more detailed investigation, including Ms de Hollander’s and Mr Pollock’s conduct in the management of the affairs of the company and Kevin Pollock’s role in the management of the affairs of the company.
48 The affidavits filed in the Court on 23 February 2010 and referred to above on behalf of Ms de Hollander seek to respond to a number of issues raised in the affidavit of Mr Cribb which are relied upon by the Deputy Commissioner in opposing the application for approval to conduct the review proceeding.
49 The first is that of Steven Masel, who is a director of Walthamstow. He confirms that Walthamstow holds mortgages over the land owned by the company with secure loans to the company in the order of $2.8 million and guarantees given by the company in respect of advances to other entities in the order of $4 million, which latter guarantees he identifies as “contingent liabilities”. Mr Masel says that by reason of the arrangements that it has made with the company and without prejudice to all of its rights under its securities, Walthamstow is satisfactorily secured in respect of the loans and contingent liabilities and “does not presently require the company to make repayment of any principal or interest in respect of the loans”.
50 He makes the point that Walthamstow has not made demand for payment of any of the loans or contingent liabilities, had not made demand of any guarantors and has not and does not presently intend to appoint any receiver to the company.
51 Mr Masel states that the continuation of the liquidation poses a threat to Walthamstow’s security and the interests of the company’s related unsecured creditors because he considers the liquidation now serves no practical purpose and that in time the value of the land security will materially increase, having regard to its proposals for redevelopment. He also considers the costs of liquidation will decrease the possibility of future payments to the remaining related creditors of the company.
52 In the further affidavit of Mr Laurier sworn 23 February 2010, he refers to the affidavit of Ms Betty‑Jane Logue, filed on behalf of the Deputy Commissioner and says he does not agree that the defendant company has any liability to the ATO.
53 He also says he is unaware of any debts owed by the company to its unrelated unsecured creditors apart from those referred to in the affidavits of Ms de Hollander, sworn 19 January and 17 February 2010 and [42(b)] of the affidavit of Mr Cribb.
54 He says that apart from the defendant’s debt to the Commissioner of State Revenue he believes that the defendant has no liability to pay any “independent unsecured creditors”.
55 In Ms de Hollander’s further affidavit sworn 23 February 2010, she states that apart from the debt to the Commissioner of State Revenue, which is still being renegotiated, she believes:
· the defendant’s debts to its unrelated unsecured creditors, including the Deputy Commissioner, have been fully discharged; and
· where such debts have been paid, by third parties, those third parties have waived any rights that they may have to recover the monies that they have paid from the defendant.
56 In particular, Ms de Hollander says that she has been advised by Annette Kuhnert, who she believes is a director of Buildline Pty Ltd, that:
· On 9 February 2010, Buildline paid $475,000 to the plaintiff to satisfy the defendant’s debts to the Deputy Commissioner.
· Buildline has waived any entitlement it may have to recover this amount from the defendant.
· If, contrary to her belief, the plaintiff’s debt has not been satisfied in full – that is to say to the Deputy Commissioner – Buildline will pay any outstanding balance without recourse to the defendant.
· Buildline will pay the Commissioner of State Revenue any debt that the defendant owes without recourse to the defendant.
57 As to the Police and Nurses Credit Society, referred to by Mr Cribb in [153] of his affidavit, Ms de Hollander says that it is not a creditor, having signed the debt the subject of the charge to Skyvale Nominees, pursuant to a deed of assignment of securities, dated 21 October 2004, a copy of which is produced to the Court, and that in or about 2007 the defendant company paid the assigned debt in full. She says Skyvale does not refer to this debt in its “claim on assets of Soiland” annexed to Mr Cribb’s affidavit.
58 As to Skyvale, Ms de Hollander states that the company is not presently indebted to Skyvale, that Skyvale has not demanded payment of any debts that it alleges are owed and “at its highest” the defendant may be contingently liable to indemnify Skyvale if it recovers monies that it is owed or guaranteed by ZGteek Pty Ltd.
59 As to the amount of $5,770,281.95 alleged to be owed by North Beach Investments Pty Ltd to Skyvale, referred to in the schedule “ZGteek Pty Ltd” at page 260 of Mr Cribb’s affidavit, she is informed by Kevin Pollock and believes that:
· North Beach Investments Pty Ltd owns land situated at North Beach Road, Gwelup on trust for Bricom Pty Ltd and Pasadena Holdings Pty Ltd.
· North Beach Investments has mortgaged the Gwelup land first to Bankwest to secure a loan of about $24 million and secondly, together with three other properties, to Skyvale to secure a loan of about $5.77 million which was used to subdivide the land into 62 residential lots.
· The Skyvale loan is guaranteed by a number of guarantors that may include ZGteek.
· Skyvale has agreed to call upon the guarantors to repay the Skyvale loan only if it is not repaid in full from the sale of the land.
· North Beach Investments will be able to sell the land when Landgate issues titles in respect of the lots, which is expected to occur in March 2010.
· The sale of the lots is expected to realise about $34 million which will enable North Beach Investments to repay the Skyvale debt in full.
60 As to the amount of $874,317.28 alleged to be owed by Moonspark Pty Ltd to Skyvale referred to in the ZGteek Pty Ltd schedule attached to Mr Cribb’s affidavit, Ms de Hollander says she is informed by Carina Healey, a director of Moonspark:
· That Moonspark has repaid the money it borrowed from Skyvale to buy land at Casuarina, referred to as “Moonspark”.
· Moonspark is not indebted to Skyvale in the sum of $874,317.28 or at all.
61 As to the amount of $30,040.45 alleged to be owed by ZGteek to Skyvale referred to in the ZGteek Pty Ltd scheduled, she is informed by Jamie Pollock and believes that:
· He is a director ZGteek Pty Ltd.
· ZGteek disputes that it is liable for this amount.
· ZGteek is willing and able to pay any of this amount that it may be found liable to pay Skyvale.
62 Ms de Hollander also relied on the affidavit of Tobias Christopher Young, sworn 22 February 2010. Mr Young is an articled clerk with law firm Birman & Ride. He attended the January meeting that Mr Cribb described in his affidavit. Mr Young says that Mr Pollock said that:
· The defendant expected to be able to raise sufficient funds to pay its unrelated unsecured creditors in full within a short period.
· The director was keen for the company to enter into a DOCA on this basis and for liquidation to be terminated.
63 He also says that Mr Cribb said that provided:
· all the unrelated unsecured creditors were paid in full;
· sufficient funds (he mentioned the sum of $2 million) were deposited in his trust account;
· the company’s outstanding BASs were lodged with the ATO; and
· he was satisfied there were no liabilities unaccounted for,
he would be minded to support this cause of action.
64 Mr Young said that Mr Pollock said that the outstanding BASs had been prepared and could be lodged within days. Mr Birman asked if it was in order for the company’s director to lodge the BASs with the ATO, given that the liquidator had been appointed. Mr Young says that Mr Cribb responded “that the director should lodge the BASs as soon as possible”.
outline of deputy commissioner’s submissions
65 The Deputy Commissioner as plaintiff questions the strength of the case on review and submits that there is no utility in granting approval to the proceeding to review the District Registrar’s decision because it is doomed to fail.
66 Further, it is contended that Ms de Hollander has not established that the defendant is solvent or alternatively prima facie solvent. To the contrary there is nothing to displace the statutory presumption of insolvency. Moreover the company’s assets are not protected against claims for costs.
67 The Deputy Commissioner contends that the commercial object Ms de Hollander seeks to bring about is a reconstruction and restoration of the defendant company to solvency that may or should be achieved by other means. If there is a viable proposal for a DOCA, the liquidator may bring about the appointment of a voluntary administrator under s 436B CA. Alternatively, or in tandem an appropriate person may, on actual restoration to solvency, apply to terminate the winding up under s 482.
68 The Deputy Commissioner contends that on the defendant company’s own evidence, the defendant is in fact hopelessly insolvent and indeed there is no need merely to rely on the presumption.
69 Further, counsel for the Deputy Commissioner contends that on any review by way of de novo hearing, the company must rebut the presumption of insolvency. Counsel contends that while related persons or entities have apparently found funds to meet the liabilities of the company in recent times incurred with unrelated unsecured creditors, there is no clarity about the continued capacity of the company to act in this way. So far as the secured creditors are concerned there is no clear evidence of any comprises being possible.
70 The Deputy Commissioner’s counsel points to the previously unrevealed apparent liabilities existing or contingent to Skyvale and Police and Nurses Credit Union.
71 In short, counsel for the Deputy Commissioner submits that the application for approval to seek review is no more than a backdoor attempt to overcome a regular and correct order that the defendant company be wound up in insolvency by, in substance, suggesting a possibility of a reconstruction to restore the defendant company to solvency. That cannot be done on review.
outline of ms de hollander’s submissions
72 Counsel on behalf of Ms de Hollander, submits that in light of the various factual matters now outlined before the Court, particularly the affidavit of Mr Laurier, the ATO debt has been paid in full. On the other hand, as counsel notes, according to Ms Logue, as at 18 February 2010 the ATO debt was $106,751.31 and the ATO has not yet credited the defendant with self assessed input credits because it considers the amounts claimed are “higher than the threshold amounts”.
73 Ms de Hollander says there is no outstanding debt to the ATO but, if there is, it can and will be met without recourse by Buildline, which has already paid $475,000 to the ATO.
74 As to Mr Cribb’s claim that he did not authorise the lodgement of the outstanding BASs, counsel contends this is contradicted by Mr Young and is inconsistent with his letter to Birman & Ride dated 2 February 2010, which is attached to Mr Young’s affidavit.
75 Counsel for Ms de Hollander submits that it is reasonable to infer from this evidence:
· If there is any outstanding debt to the ATO, its quantum is the subject of a genuine dispute.
· In any event, such debt can be immediately paid.
76 Apart from the ATO debt, it is submitted on behalf of Ms de Hollander that the debt to the Commissioner of State Revenue is being negotiated and will be paid.
77 In relation to other matters, it is submitted on behalf of Ms de Hollander that from Mr Masel’s affidavit:
· the secured creditor has compromised its debt to its satisfaction and has no immediate demand upon the defendant; and
· does not believe that the liquidator’s appointment is in the creditors’ interests.
78 From Ms de Hollander’s most recent affidavit it is submitted that:
· To the extent that the defendant has any liability to indemnify Skyvale, such liabilities are contingent, not actual and there is little likelihood of the defendant being called upon to indemnify Skyvale.
· The defendant has no other unsatisfied unrelated unsecured creditors and the defendant is able to immediately to cause any genuine creditors to be paid.
79 In summary, it is submitted on behalf of Ms de Hollander that it is reasonable to conclude that:
· The defendant is now almost certainly solvent.
· The plaintiff has little if anything to gain by pursuing this matter.
· If the liquidation proceeds, it will be at substantial cost to unsecured creditors and shareholders of the defendant with no benefit likely to accrue to any creditor.
· There is a serious question to be tried on the proposed review and any costs can be adequately secured.
consideration
80 There is much force in the case put on behalf of the Deputy Commissioner as to why approval to have a review should not be granted. On balance, however, I do not consider that the questions going to solvency should be resolved in a perfunctory way on this application for approval to proceed. I consider it would be best, albeit that it will consume additional time and resources and expense, that approval to the review proceeding be given and that the matter be listed for a review hearing.
81 The current strategy of Ms de Hollander or, on the material filed in the Court, Mr Kevin Pollock who has told a liquidator that he advises Ms de Hollander, has been to achieve payment of all unrelated creditors of the defendant company so that the only creditors of the company remaining are related unsecured creditors and secured creditors who are prepared to enter into a DOCA.
82 The existence of Skyvale and the security it holds in respect of guarantees given by the defendant company to secure repayment of $6,674,639.58 owed by ZGTeek Pty Ltd is new information in the hands of the liquidator and is the subject of some detailed explanation in attachment NRC34 to Mr Cribb’s affidavit, being a written claim on the assets of Soiland Pty Ltd (in liquidation) provided by the company secretary of Skyvale Nominees under cover of a letter dated 14 January 2010. This has been addressed in Ms de Hollander’s most recent affidavit. It is an issue that may need to be considered further at a review hearing.
83 There is no pretence that the defendant company is trading or earning any revenue. However, it may have earned revenue in the last six months of the calendar year 2009, as suggested by Mr Cribb’s analysis of the BASs lodged by Mr Laurier, is presently unexplained, if that analysis is correct.
84 It is plain enough that the company has only been able to pay out or purport to pay out unrelated unsecured creditors, including the ATO, in recent days due to financing organised principally by Mr Kevin Pollock. Ms de Hollander is not disclosed to have any close involvement in the arrangement of the financing. The company, for these recent payments, has been dependent on a related person or entity support.
85 None of this financial assistance supports a view that the company is in any position to meet its debts as and when they fall due. However, there seems now to be few if any unrelated unsecured creditors, apart possibly from the ATO.
86 I accept, for present purposes, that the status of the ATO debt is disputed, on the basis of Mr Laurier’s affidavit evidence. The affidavit evidence in this regard is contentious. I am not able on the affidavit evidence to rule on whether, for example, the BASs and the IASs were actually lodged by Mr Laurier with the liquidator’s approval. Nor am I able to rule whether the ATO debt has been extinguished.
87 The simple reality is that the company appears to have one main asset – the land at Wattle Grove. While Ms de Hollander suggests that it may have a value $10,172,000 based on information contained in Mr Lean’s affidavit of 22 December 2009, nothing has been advanced in materials before me to this point to suggest that the analysis made by the District Registrar of that value and the likelihood that it might be attained, are not correct. However, it seems on the basis of Mr Masel’s affidavit just filed that the secured creditor at least shares the optimism of others that the land may be developed in time to achieve a higher return than if it were to be sold in the current liquidation in an undeveloped form. The position of the secured creditors now seems to be supportive of the company’s continued existence.
88 In these circumstances, I consider that while a real question hangs over the company’s solvency, a sufficient case has been raised by Ms de Hollander to support her application for approval to proceed in the company’s name to seek review of the Deputy Registrar’s decision to wind up the company. Questions relating to the best interests of creditors remain, particularly if the debts to all unsecured creditors and the Deputy Commissioner are soon resolved or satisfied. I also take into account the “constitutional imperative” mentioned earlier entitling a review of a registrar’s decision.
89 However, the Court’s approval should be given on the condition that Ms de Hollander will indemnify the company for all costs it may be ordered to pay in respect of the review and will provide a bank guarantee to secure such an order.
90 I will hear from counsel as to the final terms of the orders to be made.
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I certify that the preceding ninety (90) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Barker. |
Associate:
Dated: 2 March 2010
