FEDERAL COURT OF AUSTRALIA

Deputy Commissioner of Taxation v Croftworth Property Holdings (No 2) Pty Ltd [2011] FCA 296

UPON THE UNDERTAKING of TREVOR QUINLIVAN, Sole Director of CROFTWORTH PROPERTY HOLDINGS (NO 2) PTY LTD not to revoke the authorisation and direction of Robinson & Robinson Lawyers of 66 Appel Street, Surfers Paradise, to pay upon receipt into their Trust Account monies advanced to the company from Alliance Private Capital Limited the amount of $11,405.71 or such higher sum as is notified to be properly due and owing to the Australian Taxation Office; AND that CROFTWORTH PROPERTY HOLDINGS (NO 2) PTY LTD will not transfer, encumber or adversely deal with the assets and undertakings of the company other than to complete all acts necessary to effect the refinance agreement with Alliance Private Capital Limited deposed to at paragraphs 41 to 44 of the affidavit of Robert John Knight sworn on 18 March 2011 filed in these proceedings and other than in the ordinary course of business.

THE COURT ORDERS THAT:

1.    The hearing of the winding up application is adjourned to 9.30am on 1 April 2011.

2.    Costs are reserved.

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.

UPON THE UNDERTAKING of LEO RALPH, Sole Director of BLAXLAND GARDENS PTY LTD not to revoke the authorisation and direction to Robinson & Robinson Lawyers of 66 Appel Street, Surfers Paradise, to pay upon receipt into their Trust Account monies advanced to the company from Alliance Private Capital Limited the amount of $362,163.44 or such higher sum as is notified to be properly due and owing to the Australian Taxation Office; AND that BLAXLAND GARDENS PTY LTD will not transfer, encumber or adversely deal with the assets and undertakings of the company other than to complete all acts necessary to effect the refinance agreement with Alliance Private Capital Limited deposed to at paragraphs 41 to 44 of the affidavit of Robert John Knight sworn on 18 March 2011 filed in these proceedings and other than in the ordinary course of business.

THE COURT ORDERS THAT:

1.    The hearing of the winding up application is adjourned to 9.30am on 1 April 2011.

2.    Costs are reserved.

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.

UPON THE UNDERTAKING of LEO RALPH, Sole Director of FENSTATE PTY LTD not to revoke the authorisation and direction to Robinson & Robinson Lawyers of 66 Appel Street, Surfers Paradise, to pay upon receipt into their Trust Account monies advanced to the company from Alliance Private Capital Limited the amount of $122,119.73 or such higher sum as is notified to be properly due and owing to the Australian Taxation Office; AND that FENSTATE PTY LTD will not transfer, encumber or adversely deal with the assets and undertakings of the company other than to complete all acts necessary to effect the refinance agreement with Alliance Private Capital Limited deposed to at paragraphs 41 to 44 of the affidavit of Robert John Knight sworn on 18 March 2011 filed in these proceedings and other than in the ordinary course of business.

THE COURT ORDERS THAT:

1.    The hearing of the winding up application is adjourned to 9.30am on 1 April 2011.

2.    Costs are reserved.

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.

UPON THE UNDERTAKING of LEO RALPH, Sole Director of KINSWATER PTY LTD not to revoke the authorisation and direction to Robinson & Robinson Lawyers of 66 Appel Street, Surfers Paradise, to pay upon receipt into their Trust Account monies advanced to the company from Alliance Private Capital Limited the amount of $18,111.01 or such higher sum as is notified to be properly due and owing to the Australian Taxation Office; AND that KINSWATER PTY LTD will not transfer, encumber or adversely deal with the assets and undertakings of the company other than to complete all acts necessary to effect the refinance agreement with Alliance Private Capital Limited deposed to at paragraphs 41 to 44 of the affidavit of Robert John Knight sworn on 18 March 2011 filed in these proceedings and other than in the ordinary course of business.

THE COURT ORDERS THAT:

1.    The hearing of the winding up application is adjourned to 9.30am on 1 April 2011.

2.    Costs are reserved.

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.

UPON THE UNDERTAKING of TREVOR QUINLIVAN, Sole Director of CROFTWORTH PROPERTY HOLDINGS (NO 1) PTY LTD not to revoke the authorisation and direction to Robinson & Robinson Lawyers of 66 Appel Street, Surfers Paradise, to pay upon receipt into their Trust Account monies advanced to the company from Alliance Private Capital Limited the amount of $34,261.67 or such higher sum as is notified to be properly due and owing to the Australian Taxation Office; AND that CROFTWORTH PROPERTY HOLDINGS (NO 1) PTY LTD will not transfer, encumber or adversely deal with the assets and undertakings of the company other than to complete all acts necessary to effect the refinance agreement with Alliance Private Capital Limited deposed to at paragraphs 41 to 44 of the affidavit of Robert John Knight sworn on 18 March 2011 filed in these proceedings and other than in the ordinary course of business.

THE COURT ORDERS THAT:

1.    The hearing of the winding up application is adjourned to 9.30am on 1 April 2011.

2.    Costs are reserved.

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.

UPON THE UNDERTAKING of LEO RALPH, Sole Director of HEIDELBERG INVESTMENTS PTY LTD not to revoke the authorisation and direction to Robinson & Robinson Lawyers of 66 Appel Street, Surfers Paradise, to pay upon receipt into their Trust Account monies advanced to the company from Alliance Private Capital Limited the amount of $55,306.11 or such higher sum as is notified to be properly due and owing to the Australian Taxation Office; AND that HEIDELBERG INVESTMENTS PTY LTD will not transfer, encumber or adversely deal with the assets and undertakings of the company other than to complete all acts necessary to effect the refinance agreement with Alliance Private Capital Limited deposed to at paragraphs 41 to 44 of the affidavit of Robert John Knight sworn on 18 March 2011 filed in these proceedings and other than in the ordinary course of business.

THE COURT ORDERS THAT:

1.    The hearing of the winding up application is adjourned to 9.30am on 1 April 2011.

2.    Costs are reserved.

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.

UPON THE UNDERTAKING of TREVOR QUINLIVAN, Sole Director of CROFTWORTH PROPERTY HOLDINGS PTY LTD not to revoke the authorisation and direction to Robinson & Robinson Lawyers of 66 Appel Street, Surfers Paradise, to pay upon receipt into their Trust Account monies advanced to the company from Alliance Private Capital Limited the amount of $125,560.80 or such higher sum as is notified to be properly due and owing to the Australian Taxation Office; AND that CROFTWORTH PROPERTY HOLDINGS PTY LTD will not transfer, encumber or adversely deal with the assets and undertakings of the company other than to complete all acts necessary to effect the refinance agreement with Alliance Private Capital Limited deposed to at paragraphs 41 to 44 of the affidavit of Robert John Knight sworn on 18 March 2011 filed in these proceedings and other than in the ordinary course of business.

THE COURT ORDERS THAT:

1.    The hearing of the winding up application is adjourned to 9.30am on 1 April 2011.

2.    Costs are reserved.

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.

REASONS FOR JUDGMENT

1    A Deputy Commissioner of Taxation has applied for the winding up following companies in insolvency under the Corporations Act 2001 (Cth): Croftworth Property Holdings (No 2) Pty Ltd, Blaxland Gardens Pty Ltd, Fenstate Pty Ltd, Kinswater Pty Ltd, Croftworth Property Holdings (No 1) Pty Ltd, Heidelberg Investments Pty Ltd, and Croftworth Property Holdings Pty Ltd.

2    In each case, the basis for the application is a failure by the company concerned to comply with the terms of a statutory demand. The foundation for those respective statutory demands is an indebtedness by the company concerned to the Commonwealth in respect of various debts payable to the Commissioner arising under the revenue laws of the Commonwealth.

3    Upon the applications being called on today, the companies applied for an adjournment of the winding-up applications.

4    The basis for the adjournment is, in short, that there is a prospect of loan funds being advanced to the companies in a way more particularly detailed in paragraph 44 of Mr Robert John Knight’s affidavit filed by leave today. If received, those loan funds would, on the evidence to hand, be sufficient to discharge not just the debts owed to the Commonwealth and payable to the Commissioner but also amounts owed to other unsecured creditors. Further, it would leave the group of companies, which might conveniently be described as “the Croftworth Group of companies”, with working capital for their further business needs.

5    It is a noteworthy feature of the material that there are two other major unsecured creditors, the State of Queensland, via its Office of State Revenue, in respect of taxes and duties arising under State law, and the Gold Coast City Council, presumably in respect of rates.

6    There is, then, more than a suspicion that the public purse has been used as a banker for the operation of these corporate entities. That is a relevant consideration in relation to whether to grant an adjournment of the winding-up applications. It is a matter of singular concern to me that there not be seen to be any encouragement of a practice of which I thoroughly deprecate.

7    That said, one has to take into account whether, in granting an adjournment, the interests of the plaintiff, other unsecured creditors and other creditors might be better served. A very important consideration, of course, is that the effect of the failure to comply by the respective companies with the statutory demand served upon them is that they are, prima facie, to be regarded as insolvent. One does not lightly countenance the continuance of companies subject to that presumption without their being subject to the control of a liquidator for the purpose of being wound up.

8    It is also a noteworthy feature of the material read that there has been some delay in the organisation of the finance from the company, St James Offshore Services SA of Empire House, Sixth Floor, 175 Piccadilly, Mayfair, London in the United Kingdom. There were proposals in relation to the securing of finance from that source which were put to the Commissioner, as a creditor, back in December of last year.

9    Objection was taken to the receipt, for the purposes of the adjournment application, of the material from that company, which respectively comprises exhibit RJK1 to Mr Knight’s affidavit. The view I have though, is that this material is admissible pursuant to s 69 of the Evidence Act 1995 (Cth). It does provide support for a view that the funds to which Mr Knight deposes, in his capacity as financial controller of the companies, are the subject of commitment. Whether or not there is substance behind that commitment will be revealed in a very short time, in the sense that the funds, if available at all, will be made available by the end of this month.

10    Of the companies the subject of the application, three: Croftworth Property Holdings, Croftworth Property Holdings (No 1) and Croftworth Property Holdings (No 2), are each landlords. They respectively own adjoining properties at Bundall on the Gold Coast. Other companies within the Croftworth Group might be described as either presently dormant or in the nature of a marketing service company for the group (Fenstate).

11    I have been proffered, and marked as an exhibit a series of what are described as irrevocable directions by the directors of the respective companies. These in terms constitute directions to the companies’ solicitors, whose trust account is the intended recipient of the loan funds, to pay from the moneys advanced amounts to the Australian Taxation Office. I should record, insofar as the directions make reference to Alliance Private Capital Limited, that the latter company is intermediary between St James Capital and the defendant companies (see exhibit “RJK-2”).

12    There is, in my opinion, some force in the submission made on behalf of the Commissioner that the “irrevocable directions” in themselves may not in terms be irrevocable, in that the directors made choose, notwithstanding their terms, to revoke them. This though, has been met by an undertaking which has been given individually to the court by each of the directors, which is that they will not seek to revoke those directions, which collectively comprise exhibit 3.

13    A further undertaking has been proffered to the court by each of the companies. That is that, save to the extent necessary to complete the financial transactions described in exhibits “RJK-1” and “RJK-2” to Mr Knight’s affidavit, they will not transfer, dispose of, further encumber or adversely deal with the assets or undertakings of the respective companies other than in the ordinary course of business.

14    There is something of a calculated risk in the granting of an adjournment in this case. There is a concern in relation to the incurring of further liabilities in the operation of the landlord companies. There is a level of generality in relation to their operations as described by Mr Knight. However, it does seem to me reasonable to infer that they have a cash flow which is likely, at least in the short period of adjournment sought, not to see disadvantage to trade creditors with whom those landlords may come to deal over the next week or so.

15    It would, of course, have been possible for the directors to have sought the appointment of an administrator and then to have promoted a deed of company arrangement. That is not a course which they have chosen to undertake. Were they now to choose to undertake that course it would require very singular evidence indeed to postpone the making of a winding-up order. It is important, though not to anticipate considerations that might arise were that course to be adopted.

16    For the moment, and on balance, I am satisfied that this is a case where the public interest, and I expressly take into account in that regard the interests of the revenue, State and Federal and the local government, as well as the wider public interest in relation to corporate insolvency being the subject of scrutiny by the independent eye of a liquidator, is best served by the postponement of the hearing of the winding-up application for a short time. On the evidence, that postponement should be no longer than that necessary to reveal whether or not the loan fund on offer is or is not a chimera. For that reason, I adjourn the winding-up application to 9.30 am on 1 April 2011.

Associate:

Dated:    30 March 2011