FEDERAL COURT OF AUSTRALIA

Haulotte Australia Pty Ltd v All Area Rentals Pty Ltd (In Liq) [2012] FCA 615

THE COURT ORDERS THAT:

1.    The proceeding be listed at 9:30 am on Tuesday 19 June 2012 for the purpose of hearing the parties’ submissions as to the orders to be made to reflect the court’s reasons published this day, and as to costs.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    This proceeding was commenced on 13 April 2012 as an application by the plaintiff, Haulotte Australia Pty Ltd, for orders under ss 600A, 445D, 445G and 1322 of the Corporations Act 2001 (Cth) (“the Act”) in relation to resolutions passed at the second meeting of the creditors of the first defendant, All Area Rentals Pty Ltd (In Liq), at a time when the second defendant, Jonathan Paul McLeod, was administrator of that company. In circumstances to which I shall refer, the first defendant subsequently went into liquidation, and the second defendant became liquidator. Upon that happening, the application was amended, and is now an application under s 503 of the Act for the removal of the second defendant as liquidator of the first defendant.

2    As its name suggests, the first defendant was, until put into liquidation, engaged in the equipment hire business. The plaintiff is concerned in the manufacture and sale of scissor lifts and lifting equipment. When its customers need finance for the purchase of such equipment, they will generally arrange that with finance companies in the conventional way, and it will be the finance companies that purchase the equipment from the plaintiff. In the facts of the present case, in 2007 the plaintiff sold 70 items of equipment to the first defendant directly, and offered terms in order to enable the first defendant to establish its business. By about the end of 2008, however, when the first defendant was to have paid the plaintiff in full, it was unable to obtain finance. In the result, the plaintiff itself took the unusual course of entering into a hire purchase agreement (“the agreement”) with the first defendant. The agreement was undated, but it commenced on 3 December 2008.

3    The first defendant fell substantially behind in the payments that fell due under the agreement. On 18 August 2011, the plaintiff’s solicitors wrote to the first defendant, demanding that it pay the outstanding monthly instalments which, with interest, amounted to $1,981,879.56. Payment was required by 4:00 pm on 25 August 2011. The first defendant did not comply with the plaintiff’s demand, as a result of which, on 29 August 2011, the plaintiff terminated the agreement pursuant to a provision that permitted that course. The plaintiff required the first defendant to return the equipment to which the agreement related, to pay the amount outstanding under the agreement, and to reimburse the plaintiff for its legal costs to that date. The first defendant did none of those things. Accordingly, the plaintiff took steps to repossess the equipment, and successfully did so with respect to all but two of the items concerned. Those two items had been, while in the possession of customers of the first defendant, destroyed by fire.

4    On 22 February 2012, the first defendant placed itself into voluntary administration, and the second defendant was appointed administrator. He was asked to accept that appointment by Jared Slade of Gateway Financial Partners Pty Ltd (“Gateway”), the first defendant’s accountants. Mr Slade was known to the second defendant only as the source of referrals of engagements of this kind, of which there had been three in the twelve-month period since the first such referral was made. Prior to his appointment as administrator of the first defendant, the second defendant had had no contact with the first defendant or its director, Michael Edmonds.

5    Having received instructions in relation to the administration of the first defendant, on 28 February 2012 the plaintiff’s solicitor, Nick Kelton of Mallesons Stephen Jaques, sent an email to the second defendant in the following terms:

We act for Haulotte Australia Pty Ltd, a substantial creditor of AAR. We note Mr McLeod’s appointment as AAR’s administrator. We will confirm the details of our client’s debt separately. In the interim, I would be grateful if you could please:

•    confirm that the first creditors meeting will be held at your offices on 5 March 2012 at 10am; and

•    provide me with any correspondence or notices for creditors in respect of the upcoming meeting.

Please call me if you wish to discuss.

Beneath Mr Kelton’s name at the foot of the email was the name, street address and other contact details of Mallesons Stephen Jaques.

6    On 29 February 2012, Bill Karageozis, a member of the second defendant’s staff, sent an email to Mr Kelton, attaching a copy of the first report to creditors of the first defendant, and confirming that the first meeting of creditors was to be held on 5 March 2012. On 2 March 2012, Mr Kelton forwarded electronic versions of the plaintiff’s proof of debt and proxy form to Mr Karageozis, and said that Keith Clarke (who was and is the managing director of the Australian and New Zealand operations of the plaintiff) would bring the signed versions of these when he attended the meeting of creditors. As shown at the foot of Mr Kelton’s email, Mallesons Stephen Jaques had now become King and Wood Mallesons, but the address and contact details remained unchanged.

7    On 5 March 2012, the first meeting of creditors of the first defendant was held. Mr Clarke attended on the plaintiff’s behalf. He submitted signed versions of the plaintiff’s proof of debt – in the amount of $2,192,961.43 – and proxy form. Both documents gave the plaintiff’s address as 46 Greens Road, Dandenong, Victoria, 3175.

8    According to the minutes, at the first creditors’ meeting the second defendant made the following comment in relation to the claimed debt of the plaintiff:

In assessing the proof of debt lodged by Haulotte Australia Pty Ltd, the Chairperson noted that the amount claimed was in relation to the supply of various machinery to the company (all but two machines had now been repossessed) and the amount outstanding was supported by various tax invoices. The Chairperson admitted the amount in full but requested that the original hire/purchase agreements with the company from 2007 be forwarded to him so he could assess whether they should be disclaimed or whether they were already terminated due to pre-administration defaults. It was also noted that these agreements were not registered on the Personal Property Securities Register.

A committee of creditors was established, consisting of three persons, including Mr Clarke.

9    At the first meeting, Mr Clarke said that the plaintiff was concerned that Mr Edmonds was “now trading the business of [the first defendant] as ‘All Site Rentals’.” The second defendant responded that he would investigate that matter. Mr Clarke’s information had come to him from one of the plaintiff’s employees in Queensland, who had seen a circular under the name of “All Site Rentals Pty Ltd” (“All Site”), written by Mr Edmonds as managing director of the first defendant and by his wife Tracy Edmonds as director of All Site. The circular was addressed “to our valued customers”, and asked them to note that, from 17 February 2012, “we will be trading as ‘All Site Rentals’”. New bank details were given, as was the business number of All Site. However, it was said that the address, phone and fax numbers “remain the same”. The circular said that all payments made from 17 February 2012 “MUST be made out to the new name for easy processing and to help with the transition process”. The position was, therefore, that, five days before he placed the first defendant into administration, Mr Edmonds advised its customers that they should deal with All Site, and make any future payments, including, presumably, payments in respect of past business, to All Site. At the time of the meeting on 5 March 2012, Mr Clarke had not come into possession of a copy of this circular: he did so on 13 March 2012.

10    On the afternoon of the same day, 5 March 2012, the second defendant was provided with a copy of the agreement. He reviewed it, but at that time did not read the provisions (referred to below) which regulated the plaintiff’s entitlements in a situation where the first defendant was in default.

11    On 19 March 2012, the second defendant gave notice to creditors of the first defendant of the holding of the second meeting of creditors on 28 March 2012. It is controversial whether that notice was sent to the plaintiff, and, on the evidence before me, it appears that the plaintiff did not receive the notice. I shall refer to those issues below. However, in other respects and in relation to other creditors, it is uncontroversial that notices of the second meeting of creditors were given by the second defendant.

12    The second defendant’s notice to creditors of the second meeting was accompanied by his second report to creditors. The report contained a list of unsecured creditors, whose debts totalled $2,742,152.03, including the plaintiff’s debt of $2,192,961.43. As at the date of his second report, the second defendant had found that the only asset of the first defendant was cash to the value of $972.39. Despite the nature of its business, the first defendant had no plant and equipment, no motor vehicles and no land or buildings. However, with respect to plant and equipment, the report noted as follows:

Further investigations confirm that there are no assets of this category to realise for the benefit of creditors as at the date of my appointment. However, creditors should note that prior to my appointment, Haulotte Group, being one of the company’s creditors had repossessed various machinery of the company prior to my appointment as a result of the company defaulting on a hire / purchase agreement in place between the parties. Upon my appointment, I appointed Mr Mark Griffiths of Professional Valuation and Auction Services to provide an estimated value of the machinery that was re-possessed in order to properly value the creditor’s proof of debt lodged against the company. I understand that Haulotte Group are currently in the process of locating and taking possession of further machinery that was also the subject of the previously defaulted hire / purchase agreement.

The report noted that Mr Edmonds had not provided the second defendant with any written reasons for the failure of the first defendant. The second defendant’s own opinion was that the first defendant’s financial difficulties could be attributed to poor strategic management of cash flow, and its inability to generate sufficient cash flow to pay its debts, and trading losses. The second defendant’s investigations into the first defendant’s books and records indicated that it had no realisable debtors, despite the fact that the balance sheet as at 30 June 2011 indicated the existence of trade debtors in the sum of $699,959.44. The second defendant had asked Mr Edmonds for an explanation of the then current level of debtors, but had not received any written response. He said that his investigations in this regard were continuing.

13    The second report to creditors dealt with the subjects of unfair preferences and uncommercial transactions. It was stated that the second defendant had identified $539,122.99 of payments that displayed “some of the indicia of preferential payments”, in which respect the second defendant said that his experience would make it prudent to discount the sum by 50% if creditors were estimating the net return that might result from clawing back those payments. The second defendant said that he had not identified any uncommercial transactions in the books and records in his possession. Both in respect of preferences and in respect of uncommercial transactions, the second defendant noted in his report that a liquidator would be able to make further investigations and to take legal action, but funding would be required.

14    The second defendant laid out the options for creditors in his second report: (1) require the first defendant to enter into a deed of company of arrangement; (2) end the administration; or (3) wind up the first defendant. He recommended the latter, because –

•    The company is insolvent;

•    If the administration ends, control of the affairs returns to the director.

•    A proposal for a Deed of Company Arrangement has been received under which it is anticipated that creditors may receive a return that may not differ with or in fact may be less than that under a Liquidation scenario if voidable transactions are litigated under liquidation (and further investigations undertaken).

•    Further, I have been provided with no evidence to substantiate the capacity of the director to fund the proposed Deed contribution during the four (4) month term of the DOCA.

Mr Edmonds had, however, proposed the making of a deed, a draft of which was annexed to the second defendant’s report.

15    The second meeting of creditors was duly held on 28 March 2012. There were three persons present holding proxies for creditors: one holding a proxy for the Australian Taxation Office (“the ATO”), one holding a proxy for a company called Dingli (Australia) Pty Ltd (“Dingli”) and Mr Slade, who held proxies for 19 creditors. Mr Edmonds, himself a creditor, was also present. The Dingli representative questioned the “astonishingly large sum” of the plaintiff’s claim. According to a version of the minutes of the meeting sent to Mr Kelton by Mr Karageozis on 2 April 2012, the second defendant –

… advised the meeting that subsequent to the First Meeting of Creditors of the company, the Administrator liaised with his valuers and solicitors to establish the validity of the claim. Mr Dale Cliff of ClarkeKann Lawyers advised the meeting that Haulotte repossessed the company’s assets on or around August 2011 and the supporting documentation provided to the Administrator’s office in support of their claim, being various tax invoices were issued to the company after the repossession. Additionally, Mr Cliff further advised the meeting that Haulotte has been re-leasing the repossessed assets, which is essentially “double-dipping” by making a claim against the company and earning money at the same time. Mr Cliff commented that if anything, Haulotte’s claim should be rejected for dividend purposes.

Dale Cliff was a solicitor from the firm of ClarkeKann Lawyers, who acted for the second defendant. The ATO representative asked the second defendant how the rejection of the plaintiff’s claim would affect the estimated return to ordinary unsecured creditors, and he was given the response that the return would increase from 1.197 cents in the dollar to “around 5 to 6 cents in the dollar”.

16    On the motion of Mr Slade, the meeting resolved that the company should execute a deed of company arrangement. Of the 22 creditors represented, 21 voted in favour of that motion. Between them, those 21 creditors represented debts in the total sum of $2,956,660. Of the 21, nine were employees who had lodged proofs of debt totalling $31,822, and six were related party creditors whose proofs of debt totalled $2,764,958. The one creditor which voted against the resolution was the ATO, whose claimed debt was in the sum of $308,710.

17    The plaintiff was not represented at the second meeting of creditors. It had not received notice of the meeting. It is common ground that the notice (with attachments, including the second report) was not sent to the plaintiff’s address at Dandenong as noted on its proof of debt, and that it was not sent to Mr Kelton by email. Rather, according to the second defendant, the notice was sent by ordinary post to the plaintiff c/- Mallesons Stephen Jaques at the street address appearing at the foot of Mr Kelton’s emails. The second defendant called the staff member who, or who supervised another employee who, prepared the mailing list for the notice to go to creditors who had lodged proofs, printed the mailing labels, took the completed envelope to the post office, and secured a mailing receipt for items in the same number as there were mailing labels printed. I accept her evidence. The strong probabilities are that the notice of the second meeting of creditors, duly addressed to the plaintiff c/- its solicitors, was included in the articles that the second defendant’s staff placed in the post on 19 March 2012.

18    The plaintiff called direct evidence on this subject too. Although there may have been some slight confusion caused by its solicitors’ change of name between 28 February and 19 March 2012, I am not disposed to think that very likely. Mr Kelton gave evidence of systems in place in his office which would, I accept, make it most unlikely that a properly addressed item that was received in the ordinary course of the mail would not come to the attention of its intended recipient. However, the second defendant’s notice of 19 March 2012 did not come to Mr Kelton’s attention. In all the circumstances, I consider that this is just one of those unusual occasions upon which something has become “lost in the mail”. I would not blame anyone for that.

19    On 30 March 2012, it came to Mr Clarke’s attention that the second meeting of creditors of the first defendant had been held. On 31 March 2012, Mr Clarke sent an email to the second defendant asking whether that was so, and if it was, why he was not informed. On 2 April 2012, Mr Karageozis sent an email to Mr Clarke confirming that the second meeting had been held on 28 March 2012, and advising that notice of the meeting had been sent to the plaintiff c/- Mallesons Stephen Jaques. He said that the meeting was also advertised in the Courier Mail. He attached a copy of the minutes of the meeting. Mr Kelton received a copy of that email, with the attachment. On the same day, Mr Kelton sent two emails to Mr Karageozis. The first contained a protest that he had never received notice of the second meeting, and an indication of his surprise “that a simple phone call was not made when you realised that the largest creditor was not in attendance”. Mr Kelton noted “that a DOCA has been executed”. In this respect, he was mistaken. All that had happened was that the meeting had resolved that the first defendant should execute a deed. Nonetheless, Mr Kelton ventured the opinion that “this outcome lacks integrity when the largest creditor was deprived of the opportunity to vote”. In his second email, Mr Kelton stated that the plaintiff’s proof of debt listed its own address at Dandenong, and asked for an explanation as to why the notice was not sent to that address. He said that “the failure to give notice to the company’s largest creditor, and a member of the committee of creditors, is completely unacceptable”. He said that there was no way that the plaintiff would have voted in favour of the execution of a deed. He said that the plaintiff “is justifiably furious that your oversight has deprived them of the opportunity to vote in this matter”. He suggested that the second defendant should apply to have the deed set aside, or at least pay the costs of the plaintiff should it take that step. Mr Kelton did not receive a prompt reply to either of his emails of 2 April 2012.

20    On 12 April 2012, Mr Kelton sent what was, in effect, a letter of demand to the second defendant reiterating, more formally, the sentiments set out in his emails of 2 April 2012. He said that, by reason of the plaintiff not having been given notice of the second meeting of creditors, the court would be likely to set aside resolutions passed at that meeting, and to terminate any deed of company arrangement which had been executed, or declare any such deed void. He demanded that the second defendant properly convene a second meeting of creditors in accordance with s 439A(3) of the Act by giving notice to as many of the first defendant’s creditors as was reasonably practicable, including the plaintiff.

21    The second defendant took no action in response to Mr Kelton’s letter of 12 April 2012, and the present proceeding was commenced the following day. The plaintiff claimed relief of the kind referred to in the first paragraph of these reasons. What was said to be the second defendant’s failure to give the plaintiff notice of the second meeting of creditors lay at the core of the plaintiff’s allegations.

22    On 13 April 2012, Mr Cliff wrote to Mr Kelton. Although Mr Kelton received that letter (by email) after the originating process in this proceeding had been filed, there is nothing from the terms of the letter which would suggest that Mr Cliff was aware of that circumstance. He justified the sending of the notice of the second meeting of creditors to Mallesons Stephen Jaques by reference to Mr Kelton’s own email of 28 February 2012 “directing that any notices in respect of the company be sent to you”. With respect to the plaintiff’s claim to be “a substantial creditor”, Mr Cliff said:

Following the first meeting of creditors our client carried out an investigation as to your client’s proof of debt. It seems, from the information provided by the director, that the invoices attached to the proof of debt were recently produced. The director denies ever having received those invoices. Further, the issue of a tax invoice in respect of a hire purchase agreement is not consistent with the operation of that agreement. In fact it seriously calls into question your client’s conduct.

The director informed our client that in August 2011 your client repossessed some 60 machines from the company. Those machines remain in your client’s possession and in some cases are being used by your client by way of hire to third parties.

Attached for your client’s review is a valuation prepared on our client’s instructions. You will see that the present market value of the machines repossessed plus the value of plant sold is $2,432,500 or $1,585,000 on a liquidation sale.

It goes without saying that your client cannot have the benefit of the machines and the full finance amount. That being the case, if your client had attended the creditors meeting it would have only been entitled to vote if it had made a just estimate of the outstanding amount having deducted the value of the machines repossessed.

On the face of the valuation your client may in fact be indebted to the company or, at worst, the company was indebted to your client for no more than approximately $600,000.

On the basis that the plaintiff’s claim was for no more than about $600,000, Mr Cliff said that “the proper quantum of your client’s claim would not have altered the vote either in number or value”. He suggested that the plaintiff might “contact the director” (presumably Mr Edmonds) and “perhaps a solution might be achieved without recourse to the courts”. He suggested that “the content of the independent valuation is probably the starting point for any discussion”. In a letter to Mr Cliff of 17 April 2012, amongst other things, Mr Kelton set out the basis of the plaintiff’s entitlement, under the agreement, to the sums with respect to which it had proved, notwithstanding it having repossessed the equipment to which the agreement related.

23    Subsequently, but still on 17 April 2012, Mr McLeod sent to Mr Kelton, by email, a copy of “amended minutes” of the second meeting of creditors of the first defendant. In place of the text commencing “Mr Dale Cliff of ClarkeKann …” in the extract set out in para 15 above, the amended minutes showed the following:

Mr Dale Cliff of ClarkeKann Lawyers advised the meeting that Haulotte repossessed the company’s assets on or around August 2011 and the supporting documentation provided to the Administrator’s office in support of their claim, being various tax invoices were on the directors advice never issued to the company. Additionally, Mr Cliff understood from discussion with the valuer appointed by me that Haulotte has re-leased the repossessed assets, which is essentially “double-dipping” by making a claim against the company and earning money at the same time. Mr Cliff commented that in order to have been permitted to vote at the meeting Haulotte would have been required to make a just estimate of its claim. As against its proof of debt the value of the goods repossessed seemed, on the advice of the valuation to exceed the amount specified in the proof of debt or at worst leave no more than about $400,000 owing.

24    On 20 April 2012, Mr McLeod sent an email to Mr Kelton and Mr Clarke, informing them that the first defendant did not “intend to execute a deed of company arrangement” and that, as a result, it was now in liquidation. That was a statement as to the effect of s 446A of the Act, a deed not having been executed within 15 business days of the second meeting as required by s 444B(2)(a). Thereupon the second defendant became the liquidator in the winding up of the first defendant.

25    By leave given on 1 May 2012, on that day the plaintiff filed an amended originating process, in which the only relief sought were orders that the second defendant be removed as liquidator of the first defendant, and that Julie Ann Williams of Insolvency and Turnaround Solutions be appointed as liquidator in his place, pursuant to s 503 of the Act.

26    Under s 503, it is not necessary for the plaintiff to establish personal unfitness, impropriety or breach of duty on the part of the liquidator. The question, rather, is whether it is for the better conduct of the liquidation, or for the general advantage of those interested in the assets of the company, that the liquidator be removed: see City and Suburban Pty Ltd v Smith (1998) 28 ACSR 328, 336: and, for a recent summary of the relevant law, Re Termicide Pest Control Pty Ltd [2011] FCA 1410 at [10]-[11]. In the present case, counsel for the plaintiff submitted that the question was not whether specific considerations would amount to a justification for the removal of the second defendant, but whether, from an overall perspective, it was for the better conduct of the liquidation, or for the general advantage of the creditors, that the second defendant be removed. There were, however, a number of circumstances which were pressed upon me as justifying that course, and I must commence with a consideration of them.

27    The plaintiff’s first point was that the second defendant breached s 439A(3) of the Act by failing to give it written notice of the second meeting of the creditors of the first defendant. Whether there was such a failure requires consideration of the regulatory environment governing such matters. Regulation 5.6.12(1)(a) of the Corporations Regulations 2001 (Cth) (“the regulations”), applied to the second meeting of creditors of the first defendant, and required notice of that meeting to be given to creditors in writing. By reg 5.6.12(2)(b), a means of doing so was to send it to creditors by prepaid post. In the case of a creditor who, like the plaintiff, had lodged a proof of debt, reg 5.6.12(8) required the notice to be sent to the address set out in the proof of debt, or “to any other address known to” the second defendant. The street address of the plaintiff’s solicitors was an address known to the second defendant, and was, therefore, available as an address to which notice of the second meeting of creditors could be sent. Combined with the finding which I have made in para 17 above, the result is that the plaintiff’s submission that the second defendant breached s 439A of the Act by failing to give the plaintiff notice of the second meeting must be rejected.

28    The plaintiff’s next point was that the second defendant had misrepresented the legal foundation, and therefore the amount, of the plaintiff’s debt at the second meeting of creditors. If correct, the original force of this submission may have been that, in voting for a deed of company arrangement, the creditors were misled in relevant respects. However, that consideration is no longer relevant. As I understand it, the plaintiff now says that the second defendant’s misrepresentation of its entitlement shows him to be ill-disposed towards itself, and therefore not impartial. Allied to this point is a criticism of the second defendant for having expended valuable resources on securing a valuation of the equipment repossessed from the first defendant by the plaintiff after termination of the agreement. According to the plaintiff, the value of the equipment was irrelevant to the size of its legitimate claim in the winding up of the first defendant.

29    While I do not consider it appropriate to make the present the occasion for a binding determination of the plaintiff’s entitlement under the agreement – that being a matter best left to the environment of the winding up as such – it is, in my view, convenient to give the question some attention, if for no other reason than to provide the setting for the way the second defendant conducted himself in relevant respects. The agreement had a term of 51 months, commencing on 3 December 2008. Forty-eight GST-exclusive rental payments of $106,826 each were payable on the 10th day of each month, commencing on 10 March 2009. When all of these payments, and any other payments due to the plaintiff under the agreement, had been made, ownership of the equipment would pass to the first defendant. If the agreement were terminated early for default, the first defendant was required to pay all the outstanding rent, interest, and any other sum that was due under the agreement. Additionally, the first defendant was required either –

    to pay the “termination amount” (defined as the amount of rent that would have been payable had the agreement run its original term and all payments made when due) plus 5% of the cash price of $4,355,400 plus any applicable repossession and sale costs; or

    to return the equipment to the plaintiff in good order and condition.

If the first defendant did neither of these things, the plaintiff was entitled to repossess the equipment, and the first defendant was required to pay all the outstanding rent, interest, and any other sum that was due under the agreement and, as liquidated damages, an amount, equal to the monthly rent, for each month or part month during which it failed to return the equipment. On these terms, there seems to be considerable support for the meaning for which the plaintiff contends, namely, that, upon termination for default, the plaintiff was entitled to be paid the outstanding rent, interest, and any other sum that was due under the agreement and to repossess the equipment (which, under the terms of the agreement, remained its property).

30    I do, therefore, accept the plaintiff’s submission that the second defendant, by the agency of his solicitor Mr Cliff, took too categorical, and perhaps too adversarial, a position about the justification for the plaintiff’s proof of debt at the second meeting of creditors. That position was reflected in the second defendant’s decision to procure a valuation of the equipment repossessed by the plaintiff, and in Mr Cliff’s letter to Mr Kelton of 13 April 2012. So far as the second defendant himself is concerned, however, I could not find that he proceeded otherwise than by taking legal advice as to the plaintiff’s claim and acting in accordance with it. That advice was tendered without the benefit of the input from the plaintiff’s own advisers, but the second defendant was entirely within his rights – and was acting in the interests of the creditors as a whole – to have cast an especially careful eye over such a large claim as the plaintiff’s. The way he did so was not, in my view, indicative of a disposition antagonistic to the plaintiff’s claim or of partiality in any other sense.

31    The plaintiff’s next point has more substance. It relates to what, on the evidence as it stands, appears to have been a project by Mr Edmonds to transfer customers, and the associated receivables, to All Site. All Site was registered on 13 September 2011 and adopted its present name on 28 October 2011. Its registered office is c/- Gateway. Mrs Edmonds is the secretary, and the only director. There is one share only, held non-beneficially by a company called “All Site Hire Pty Ltd”, as to which the court has no other information.

32    In evidence is an email, internal to Gateway, which was sent on 23 February 2012. The sender was someone in Gateway called Mary Young, and the recipient was Mr Slade. Ms Young said: “Please find attached the list of Debtors and Creditors which are being assigned from All Area Rentals Pty Ltd to All Site Rentals Pty Ltd”. Attached to the email was a list of aged payables as at 22 February 2012, and a list of aged receivables as at the same date. Total payables were $54,788.57, not including the plaintiff. Total receivables were $604,048.85. In evidence also is a spreadsheet setting out the payables reconciliation for All Site as at 22 February 2012. It includes sums payable to a number of entities that lodged proofs in the administration of the first defendant. There is also an application form, signed on 13 March 2012 by the second defendant himself, for the transfer of the first defendant’s telephone account to All Site.

33    These matters were put to the second defendant in the course of cross-examination by counsel for the plaintiff. He was aware of All Site, he knew that Mrs Edmonds was a director of All Site and that Mr Edmonds was not, and he knew that some trade creditors had been “transferred” from the first defendant to All Site. He understood that All Site was a company with its own business, albeit that it was related to the first defendant. He recognised that, if the transfer of creditors to All Site was legitimate, it might be All Site, rather than those creditors, which would have an interest in the liquidation of the first defendant. He said that, because of the repossession of its equipment by the plaintiff, the first defendant effectively had no business any more, while, so far as he knew, All Site was a viable, separate, business with its own equipment. On the other hand, the second defendant appears to have had no knowledge, until confronted with it in the context of this proceeding, of the purported “transfer” of trade debtors to All Site. Indeed, he said in evidence that he had asked Mr Edmonds, and possibly also Mr Slade, about the whereabouts of the trade debtors, and had been told that there were none. As it seems to me, such a view could only have been based upon an assumption that the transfer of 23 February 2012, in which Gateway was seemingly complicit, was efficacious. As noted above, on 30 June 2011 the debtors were $699,959.44. The debtors ostensibly transferred to All Site on 23 February were $604,048.85. At the time of the second defendant’s second report to creditors, they were ostensibly nil. The second defendant would surely have joined the dots involved here if he had been provided with the first defendant’s MYOB file, but, despite having sought it from Mr Edmonds and Mr Slade, he was not given it.

34    If the situation is as I have described it, it is a rather troubling one. Mr Edmonds, Mrs Edmonds and Gateway were represented by counsel on the present application, and they neither gave evidence nor made submissions on the subject of the first defendant’s debtors. In the circumstances, I believe I am justified in expressing the view, which I hold, that the situation is one which calls for a vigorous and independent approach on the part of the liquidator of the first defendant, whoever that may be. I do not find that the second defendant shares any of the responsibility for the matters to which I have referred, but, when I come to the question whether it would be in the interests of the liquidation of the first defendant generally for him to remain as liquidator, those matters have given rise to obvious concerns.

35    The second defendant was appointed on the initiative of Mr Slade, the first defendant’s accountant. While I have no reason to doubt that there is a completely professional relationship between these two men, nonetheless Mr Slade has been a source of work for the second defendant. I would have to say that, on the evidence as it presently appears, steps taken by, or with the endorsement or knowledge of, Mr Slade and/or his company Gateway are likely to be subjects proper for investigation by the liquidator. In the circumstances, it would be preferable for those investigations to be undertaken by someone with no prior connection with Mr Slade, and having no expectation of obtaining work from him in the future. Relatedly, in the particular circumstances of the case as they have been revealed, there is an argument that the interests of the creditors would be best served by the appointment of a liquidator who had not been administrator during the period when the first defendant was in administration. It is true that, during that period, the second defendant lacked the powers of investigation that a liquidator would have, but he was nonetheless in charge of a company during a period in which there were enough signs of the transfer of the business of the first defendant to All Site reasonably to have required him to be sceptical of the response from Mr Edmonds that there were no debtors and of his failure to provide the MYOB file. No such scepticism was to be seen in his second report to creditors or, I would have to say, in his evidence to the court.

36    The other matter to be considered is that of funding. As noted above, in his second report to creditors, the second defendant pointed to the need for funding if investigations were to be made in what was then his preferred option of a winding up. The only evidence which the court has of the availability of funding in such a context is that the plaintiff would provide $10,000 in the first instance, possibly to be followed by further funds if progress was being made. But the plaintiff would not provide those funds if the second defendant remained as liquidator. To the extent that the plaintiff’s position involves an implicit attempt to negotiate towards the appointment of its preferred liquidator, I am quite unmoved by it. But I do accept that the plaintiff has, ostensibly at least, a more substantial interest in the liquidation than any other unsecured creditor, and it is a fact that the enthusiasm of the other creditors for a winding up of the first defendant may be measured by the refusal of all save one of them to vote for such an outcome at the second meeting. It is manifestly in the interests of the winding up generally that the liquidator be properly funded and, while I do not for a moment assume that the sum of $10,000 would go very far (especially taking account of the need for a new liquidator to familiarise himself or herself with the file), at least it would be something. Given the particular history of the administration of the first defendant as I have described it above, I do accept that the plaintiff’s reluctance to fund a liquidation by the second defendant is a reasonable one.

37    As against those considerations, a number of matters were put forward on behalf of the second defendant as to why he should not be removed. It was said that it was still too early in the liquidation to draw any conclusion that the second defendant has not been attending to the interests of creditors in an effective and conscientious way. I agree with that so far as it goes, but it does not address the concerns to which I have referred. Those concerns do not relate to any shortcomings of the second defendant as such. I am disposed to think that, if there is to be a change in the liquidator of the first defendant, it is well that that occur sooner rather than later. If there is, as I perceive, a risk that the second defendant might at some stage be embarrassed by what happened immediately before or during the administration, it is better that the s 503 bullet be bitten at this early stage, before further costs have been incurred in the winding up of the first defendant.

38    Counsel for the second defendant made the point that, particularly since he was the administrator of the first defendant, the second defendant had already done a deal of work in identifying assets, such as potential preferences, and that the appointment of a new liquidator would give rise to duplication in the performance of this work. That is a valid consideration and it counts against making an order of the kind which the plaintiff seeks. However, I could not assume that the second defendant would not provide every co-operation with a new liquidator if one is appointed, thus mitigating, to some extent at least, the problem of duplication. Whether or not he did so, I would not regard that problem as sufficient to offset the concerns to which I have referred.

39    Finally, there are the interests of the creditors of the first defendant other than the plaintiff to be considered. Counsel for the second defendant appeared also for 19 of those creditors. They all signed a standard form instruction to Mr Cliff to appear on this application and to oppose the removal of the second defendant as liquidator of the first defendant. There are, however, a number of reasons why those instructions, and the submission made by counsel in obedience to them, should be approached with caution. First, two of those creditors are Mr and Mrs Edmonds. If the retention of the second defendant as liquidator is perceived by them, rightly or wrongly, as diminishing the likelihood that All Site would be pursued for the debts transferred to it, clearly their submissions ought to be discounted. Secondly, the debts owed by six other creditors (including Gateway) were ostensibly transferred to All Site on 23 February 2012 or thereabouts, thereby producing the result that those creditors too would – to the extent, implicit in the submissions made on their behalf, that they retained an interest in the winding up of the first defendant – have a vested interest in All Site not being pursued for the debtors transferred to it. Thirdly, one of the creditors (also in the second group referred to) has been identified by the second defendant as potentially having derived the benefit of an unfair preference, and another creditor (also in the second group) appears to be related to it. Fourthly, the group of 19 creditors includes nine former employees of the first defendant, at least one of whom appears now to be in the employ of All Site, and it is well within the bounds of the possible that others are too. Fifthly, aside from Mr and Mrs Edmonds, three of these creditors are related to the first defendant. Sixthly, all of the 19 save Mr Edmonds and one other were represented by Mr Slade at the second meeting of creditors. In one way or another, therefore, there are reasons to suppose that most of these creditors do not have the conventional enthusiasm for an independent, vigorous, winding up of the first defendant, particularly where that might be to the detriment of All Site.

40    To the extent that these creditors are independent of Mr Edmonds and interests associated with him, I also have a concern that their perception of the claims of the plaintiff might have been influenced by the characterisation of those claims at the second meeting of creditors. I think it quite likely that at least some of these creditors see the present application as one in which the plaintiff is seeking, in effect, to take over the winding up and to have it conducted henceforth by a liquidator of its own nomination and in a way that suits its own position. That would not be an accurate perception, at least insofar as any liquidator now appointed under s 503 would have responsibilities to the creditors generally. I feel sure that the second defendant too understands his role in that way, but, to the extent that I am asked to take into account the opposition of these 19 creditors, I am disposed to the view that their perception of the claims of the plaintiff may have been influenced by what Mr Cliff said at the second meeting. Those creditors were, of course, for the most part represented by Mr Slade, and, in the light of the facts to which I have referred earlier in these reasons, one would not readily infer that he would take either a sympathetic or, for that matter, an objective view to the plaintiff’s proof of debt.

41    I would only add that, by reason of choosing to be represented by counsel for the second defendant, Mr and Mrs Edmonds and Gateway are formally before the court. If there was anything which any of them might have been in a position to say against the inferences by reference to which these reasons have in part proceeded, they had the opportunity to do so. No affidavit was forthcoming from any of them.

42    On balance, for the reasons stated above, I have come to the view that it would be in the best interests of the winding up of the first defendant, and of the creditors generally, that the second defendant be removed under s 503 of the Act. However, I am also concerned that the present should not be the occasion for the plaintiff, in effect, to succeed in having a liquidator of its own choice installed – either as a matter of reality or as a matter of appearance. It was submitted on the plaintiff’s behalf that, as an alternative to the appointment of Ms Williams, it would be prepared to accept a liquidator recommended by the Insolvency Practitioners’ Association. Absent consensus on the appointment of Ms Williams (such consensus involving all of the creditors who or which have lodged proofs of debt), I would regard that as the preferable course.

43    I propose to list this application to hear the parties briefly on the orders that should now be made, including as to the matters referred to in the previous paragraph, and as to costs.

Associate:

Dated:    15 June 2012