FEDERAL COURT OF AUSTRALIA

Maloney, in the matter of ZYX Learning Centres Ltd (formerly ABC Learning Centres Ltd) (in Liq) [2016] FCA 398

ORDERS

THE COURT DECLARES THAT:

1.    For the purpose of s 544(1)(b) of the Corporations Act 2001 (Cth) (the Act), the first plaintiff has made a final distribution in the windings up of the second plaintiffs.

2.    For the purpose of s 545(1) of the Act, the first plaintiff is not liable to incur any expense in relation to steps that would be necessary to undertake to distribute the residual funds, being the funds referred to in the supporting affidavit (residual funds), to creditors of the second plaintiffs as there is insufficient available property of the second plaintiffs to incur such expense.

THE COURT DIRECTS THAT:

1.    Pursuant to s 479(3) of the Act, the first plaintiff is justified in paying the residual funds in the windings up of the second plaintiffs, to ASIC to be dealt with in such manner as ASIC considers appropriate.

THE COURT ORDERS THAT:

1.    Costs of these proceedings be costs on the windings up of the second plaintiffs.

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

REASONS FOR JUDGMENT

JAGOT J:

1    This is an application for declarations and directions sought by the liquidator of ZYX Learning Centres Ltd and ZYX Developmental Learning Centres Pty Ltd. The history of the matter can be found in my decision, Walker, in the matter of ZYK Learning Centres Limited (formerly A.B.C Learning Centres Limited) (Receivers and Managers Appointed) (in Liq) [2015] FCA 146, at which time I made an order to the effect that the two companies were to be treated as a pooled group of companies pursuant to s 579E of the Corporations Act 2001 (Cth) (‘the Act’).

2    According to the evidence of the liquidator, following the making of the pooling order, the liquidator distributed approximately $7.2 million to the priority creditors of the two companies. These payments constituted a payment of 100 cents in the dollar to priority creditors where their proofs of debt had been accepted by the liquidator.

3    Accordingly, all accepted claims of priority creditors have been paid in full. Following these payments, the liquidator currently holds approximately $444,000 in the windings up of the two companies and does not anticipate receiving any further material amounts. However, there are some anticipated additional expenses that will need to be paid in respect of the liquidations. After those anticipated expenses are paid, the liquidator will hold approximately $350,000 in the windings up of the two companies.

4    This application arises because the liquidator also currently has notices of proofs of debt and claims from non-priority unsecured creditors of the two companies in an amount in excess of $1.2 billion. In addition, the liquidator has received proofs of debt in respect of certain convertible notes issued by one of the companies in about July 2007. These proofs of debt amount to another $600 million or thereabouts, these debts being subordinated and ranking behind the claims of the other unsecured creditors.

5    The evidence establishes that, unsurprisingly, the process of adjudicating upon the proofs of debt of the non-priority unsecured creditors would be extremely costly, costs having been estimated for this process in the order of $2.4 million. In other words, the costs of adjudicating these proofs of debt would be “many multiples of the available funds”. It follows, as has been submitted, that “there would be no return to the creditors if the liquidator were to commence the adjudication process”.

6    In these circumstances, the liquidator wishes to pay the money which remains after the distribution to the secured priority creditors and the payment of the anticipated expenses to the Australian Securities and Investments Commission (ASIC) and, for that purpose, requires the relevant declarations and directions to be made under s 544(1)(b) of the Act.

7    The liquidator has taken steps to notify creditors and the committee of inspection of the two companies of the present application by posting creditor updates on 23 and 29 March 2016 together with the originating process on the liquidator’s web page on 17 March 2016, and by sending by email the originating process and information regarding relevant court dates, including today, being the hearing date of the application.

8    The liquidator has not received any inquiry or response in relation to the notified material. ASIC has also been notified. According to the evidence, ASIC has informed the liquidator that it has no objection to the Court making directions and declarations for the purpose of s 544(1)(b) of the Act, and does not wish to be heard in the proceedings.

9    Section 544(1)(b) provides that where a liquidator of a company has in his or her hands, or under his or her control, after making a final distribution, any unclaimed or undistributed amount of money arising from the property of the company, he or she must forthwith pay that money to ASIC to be dealt with under Pt 9.7 of the Act. There is the potential for ambiguity in the present case, as although the unsecured, non-priority creditors’ claims have not been adjudicated upon by the liquidator, there will not be any further distribution, as the cost of adjudication will exceed the available funds for distribution.

10    The issue, therefore, is whether there has been a final distribution for the purposes of s 544(1)(b).

11    Two other decisions have considered the application of s 544(1)(b), but it would be fair to say that the facts are different from those in the present case.

12    In Goodin, in the matter of the Grand United Order of Free Gardeners Friendly Society Ltd (in Liq) [2008] FCA 1537 the liquidator was left with funds that could not be distributed, because the persons entitled to the money could not be located or contacted.

13    In Westnet WA Infrastructure Holdings Limited [2015] NSWSC 658 the liquidator had money following the issue of cheques, pursuant to various schemes of arrangement, but those cheques were never presented.

14    I am informed that, insofar as the research of the legal representatives for the liquidator are concerned, no case has directly considered the operation of s 544(1)(b) in a case involving residual funds which, on any view, could not cover the costs of adjudication of the remaining proofs of debt.

15    When s 544(1)(b) is read in context, the conclusion should be reached that in the present case the liquidator has made a final distribution within the meaning of the section. I say this because another relevant provision is s 545(1) of the Act, which provides that, subject to the section, a liquidator is not liable to incur any expense in relation to the winding up of a company, unless there is sufficient available property. In the present case, it must follow from the evidence that the liquidator has no liability to incur any expense which would be associated with the adjudication of the outstanding proofs of debt, because there is not sufficient available property to cover the expense of so doing. The concept of a final distribution, within the meaning of s 544(1)(b), must include a distribution which is made with the consequence that there is then insufficient available property for the liquidator to carry out any further adjudication and thereby any further distribution. Further, s 544(1) expressly contemplates that there may well be amounts of money left over after a final distribution has been made.

16    For these reasons, I am satisfied that the declaration which has been sought can and should be made. I also consider that the direction sought pursuant to s 479(3) of the Act should be made, that is, a direction that the liquidator is justified in paying the residual funds in the windings up to ASIC to be dealt with in such a manner as ASIC considers appropriate.

17    Given the relationship between ss 544(1)(b) and 545(1), it is also appropriate that a further declaration be made as sought to the effect that for the purposes of s 545(1), the liquidator is not liable to incur any expense in relation to steps that would be necessary to undertake to distribute the residual funds to creditors, given the insufficient available property.

18    The only other order that is sought, which I am satisfied is also appropriate, is that the costs of these proceedings be costs in the winding up of the second plaintiffs, being the pooled companies.

Associate:

Dated:    21 April 2016