FEDERAL COURT OF AUSTRALIA

Woods v Harrison, in the matter of Telco Service Holdings Pty Ltd (in liquidation) [2017] FCA 732

ORDERS

THE COURT ORDERS THAT:

1.    The appointment of Sam Kaso as the interim receiver and manager of the property of the second to eighth defendants pursuant to the orders of 28 March 2017 be discharged and Mr Kaso’s receivership and management be terminated.

2.    The plaintiffs’ undertaking as to damages given to the Court on 28 March 2017 be discharged in its operation as and from the date of these orders.

3.    Within seven days of the date of these orders, Mr Kaso deliver to the Court an account for all amounts (not the subject of any account previously delivered to the Court) drawn by him for his remuneration, costs and expenses in his capacity as the interim receiver and manager of the property of the second to eighth defendants.

4.    Pursuant to ss 420(2)(u) and 461(1)(k) of the Corporations Act 2001 (Cth) (the Act), the second to eighth defendants (inclusive) be wound up and Mr Kaso be appointed liquidator of each of the second to eighth defendants.

5.    Any remuneration, costs and expenses reasonably incurred by Mr Kaso in his capacity as the interim receiver and manager of the property of the second to eighth defendants, but not drawn prior to the termination of Mr Kaso’s receivership and management, be payable in the liquidation of the second to eighth defendants with equivalent priority to that conferred by s 556(1)(a) of the Act upon expenses properly incurred by a relevant authority in preserving, realising or getting in the property of the second to eighth defendants or in carrying on their business.

6.    The costs of all parties, including ACN 155 975 063 Pty Ltd, of the receiver’s interlocutory application dated 27 June 2017 be treated as costs in respect of the application for the winding up of each of the second to eighth defendants for the purposes of s 556(1)(b) of the Act.

7.    To the extent otherwise applicable, the requirements of s 465A of the Act, the Corporations Regulations 2001 (Cth) and the Federal Court (Corporations) Rules 2000 (Cth) be dispensed with, or compliance therewith declared excused pursuant to s 1322(4) of the Act, to the extent that they require prior notice of the winding up application in respect of the second to eighth defendants to be given to any person other than the parties to this proceeding or the Australian Competition and Consumer Commission in Federal Court of Australia proceeding VID277/2016.

8.    Liberty to apply.

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

REASONS FOR JUDGMENT

BEACH J:

1    The present application is for the winding up pursuant to ss 420(2)(u) and 461(1)(k) of the Corporations Act 2001 (Cth) (the Act) of each of the second to eighth defendants (the companies). The application is made by the receiver of the companies, who I appointed as an interim receiver and manager on 28 March 2017 until the hearing and determination of the plaintiffs’ originating process. The receiver also seeks to have himself appointed as the liquidator of each of the companies.

2    On 23 June 2017, I granted the plaintiffs’ application for summary judgment against the first and second defendants and adjourned over the balance of that application against the other defendants for later hearing. Partial summary judgment had the consequence that the appointment of the interim receiver to the second defendant needed to be reassessed if not discharged. I raised with the parties the appropriateness of replacing the interim receivership of the companies (not just the second defendant) with either the insolvency regime of liquidation (including the appointment of a provisional liquidator) or the voluntary administration regime, although on the information available to me liquidation seemed to be the preferable course. That discussion prompted the present application made by the receiver filed on 27 June 2017 which I propose to grant after hearing the submissions of counsel this morning.

3    Before proceeding further, it is necessary to discuss some of the background to the present application.

FACTUAL BACKGROUND

4    On 26 November 2014, the first and second plaintiffs (the liquidators) were appointed joint and several liquidators of Telco Service Holdings Pty Ltd (in liquidation) (Telco Service), the third plaintiff, pursuant to an order of the Supreme Court of Victoria. Prior to 28 January 2014, Telco Service was known as Sure Telecom Pty Ltd. The application to wind up Telco Service was filed on 28 October 2014, being the relation back day.

5    On 4 March 2015, the liquidators were appointed joint and several liquidators of Sure Telecom Pty Ltd (in liquidation) (Sure Telecom), the fourth plaintiff, pursuant to an order of the Supreme Court of Victoria. Prior to 29 January 2014, Sure Telecom was known as BP Tech Corp Pty Ltd. The application to wind up Sure Telecom was filed on 28 January 2015, being the relation back day.

(a)    The liquidators’ investigations

6    Based on the investigations conducted by the liquidators to date, the following may be noted:

(a)    The first defendant, Mr James Lee Harrison (Mr Harrison) is and was at all times the sole director of the following companies:

(i)    the second defendant, Comms Service Ops Pty Ltd (formerly SoleNet Pty Ltd);

(ii)    the third defendant, SN Operations Pty Ltd;

(iii)    the fourth defendant, Tech Group NSW Pty Ltd;

(iv)    the fifth defendant, Tech Group QLD Pty Ltd;

(v)    the sixth defendant, Tech Group AUS Pty Ltd;

(vi)    the seventh defendant, Tech Group VIC Pty Ltd; and

(vii)    the eighth defendant, Telcollect Pty Ltd.

(b)    Ms Kelly Ann Harrison (Ms Harrison) is the current director and sole shareholder of 2037 Pty Ltd (2037) which is the sole shareholder of the following companies:

(i)    Telcollect Pty Ltd;

(ii)    Comms Service Ops Pty Ltd;

(iii)    SN Operations Pty Ltd; and

(iv)    SoleNet Group Pty Ltd.

(c)    SoleNet Group Pty Ltd is the sole shareholder of the following entities:

(i)    Tech Group NSW Pty Ltd;

(ii)    Tech Group QLD Pty Ltd;

(iii)    Tech Group AUS Pty Ltd; and

(iv)    Tech Group VIC Pty Ltd.

7    According to the liquidators:

(a)    at all relevant times Telco Service, Sure Telecom and the companies were involved in the operation of a business providing telecommunications services to residential and small business customers (Business);

(b)    on 2 December 2013, the Business and its assets (including customer contracts) were transferred from Telco Service to Sure Telecom (the 2013 Transaction);

(c)    during the period between 4 September 2014 to 3 October 2014, the customer contracts were transferred from Sure Telecom to Comms Service Ops (the 2014 Transaction);

(d)    in or around June 2015, the assets of Comms Service Ops (including the Business) were sold to SN Operations; and

(e)    in or around July 2015, a further transfer of customer contracts was effected from SN Operations to four state based retailing companies, being Tech NSW, Tech QLD, Tech AUS and Tech VIC.

8    The liquidators have conducted an analysis to determine the value of the Business. Based on this analysis, the liquidators have estimated that the value of the Business as at 30 June 2014, being shortly prior to the 2014 Transaction, was at least $820,691.67.

9    Based on the liquidators’ investigations, they believe that Telco Service and Sure Telecom were insolvent from at least the dates of the 2013 and 2014 Transactions, respectively. They believe that the insolvency of Telco Service and Sure Telecom is predominantly attributable to the 2013 and 2014 Transactions, which deprived Telco Service and Sure Telecom of their only known asset, being the Business.

10    In addition to this, the liquidators believe that the failure of Telco Service and Sure Telecom is also attributable to poor strategic management.

11    As a result of the liquidators’ investigations, they have contended before me that Mr Harrison has:

(a)    engaged in unlawful phoenix activity in order to avoid regulatory sanctions and other debts due and payable by Telco Service and Sure Telecom; and

(b)    transferred the Business (including the customer lists) to newly incorporated entities associated with Mr Harrison for no consideration.

12    Accordingly, it is alleged that the 2013 and 2014 Transactions comprise:

(a)    uncommercial transactions within the meaning of s 588FB of the Act;

(b)    insolvent transactions within the meaning of s 588FC of the Act;

(c)    unreasonable director related transactions pursuant to s 588FDA of the Act; and

(d)    voidable transactions pursuant to section 588FE of the Act.

13    Further, the liquidators assert that they are entitled to orders pursuant to s 588FF of the Act that:

(a)    the companies currently operating the Business (or having the benefit of the Business formerly operated by Telco Service and Sure Telecom) pay Telco Service and Sure Telecom an amount equal to the value of the Business; or

(b)    the Business be transferred back to Telco Service and Sure Telecom.

14    As a result of the liquidators’ investigations, they have also asserted claims against Mr Harrison by reason of his failure to discharge his duty to prevent the insolvent trading of Telco Service and Sure Telecom. As I have indicated earlier, I have now granted summary judgment against Mr Harrison.

(b)    The ACCC proceedings

15    On 10 March 2016, the Australian Competition and Consumer Commission filed an application in Federal Court of Australia proceeding VID220/2016 seeking freezing orders pursuant to Division 7.4 of the Federal Court Rules 2011 (Cth) against the prospective respondents identified in that application (the freezing orders proceeding), who were Mr Harrison, Telco Service, Sure Telecom, SoleNet Group Pty Ltd and the companies. On 11 March 2016, Moshinsky J made freezing orders against the prospective respondents (11 March 2016 freezing order). On 16 March 2016, Moshinsky J made a further freezing order against Ms Harrison (16 March 2016 freezing order). The 11 March 2016 and 16 March 2016 freezing orders were subsequently varied by Moshinsky J on 23 March 2016 and 14 April 2016.

16    On 1 April 2016, the ACCC filed an originating application in Federal Court of Australia proceeding VID277/2016 seeking relief against Mr Harrison, Telco Service, Sure Telecom, SoleNet Group Pty Ltd and the companies including declarative and injunctive relief, pecuniary penalties and disqualification orders (the ACCC substantive proceeding). The ACCC substantive proceeding was heard by Moshinsky J on 21 July 2016, 22 July 2016, 28 July 2016 and 11 August 2016.

17    On 20 December 2016, Moshinsky J handed down his reasons for judgment in the ACCC substantive proceeding in respect of liability. Of relevance to the current proceeding before me were his Honour’s findings, inter alia, that the customer contracts were not transferred and that the companies that purported to have the customer contracts transferred to them were not entitled to payment of the moneys from the customers under the contracts.

18    On 2 March 2017, Moshinsky J handed down his reasons for judgment in respect of relief. His Honour ordered that:

(a)    Telcollect, Comms Service Ops and SN Operations, Tech NSW, Tech QLD, Tech AUS and Tech VIC be restrained for two years from the date which was 30 days after the making of the orders, from carrying on a business or supplying services in connection with telecommunication;

(b)    Mr Harrison be restrained for two years from the date which was 30 days after the making of the orders, from carrying on a business or supplying services in connection with telecommunication and being directly or indirectly knowingly concerned in or a party to or aiding and abetting, counselling or procuring, conduct of a corporation in connection with telecommunication;

(c)    Telcollect, Comms Service Ops and SN Operations pay a civil penalty in the amount of $50,000;

(d)    Tech NSW, Tech QLD, Tech AUS and Tech VIC pay a civil penalty in the amount of $12,500;

(e)    Mr Harrison pay a civil penalty in the amount of $50,000;

(f)    Mr Harrison be disqualified from managing corporations for a period of three years from the date which was 30 days after the making of these orders; and

(g)    Telcollect, Comms Service Ops, SN Operations, Tech NSW, Tech QLD, Tech AUS and Tech VIC within 60 days of the date of the order take “all reasonable steps to provide a refund to any customer whose contract was transferred or purportedly transferred … of any cancellation fees or terminations fees (and any associated collection fees and legal fees) paid by the customer to the relevant respondent or its agent …”.

19    Further, Moshinsky J extended the 11 March 2016 freezing order so that it would be discharged on 31 March 2017.

20    The net effect of discharging the freezing order and Moshinsky J’s 2 March 2017 orders was that the Business might be dissipated. The Business was the only asset of the companies. At this point in the chronology I would note that on 28 March 2017 I appointed the receiver as interim receiver and manager of the companies; I will expand on this in a moment.

21    On 31 March 2017, Moshinsky J made final orders in the ACCC substantive proceeding. His Honour ordered that SoleNet Group Pty Ltd be restrained for a period of two years from the date of those orders, from carrying on a business or supplying services in connection with telecommunication. His Honour also amended his orders referred to at [18(a)] above and ordered that only Telcollect, Comms Service Ops, SN Operations and Tech NSW be restrained for a period of two years from the date being 30 days after the termination of the receivership of the second to eighth defendants, from carrying on a business or supplying services in connection with telecommunication.

(c)    The interim judicial receivership

22    On 28 March 2017, the liquidators before me contended that it was to the benefit of the creditors, including the customers of the companies who were entitled to a refund, that a receiver be appointed in order to preserve the Business. Receivership was also sought as a substitute to a freezing order. An order was sought pursuant to ss 23 and 57 of the Federal Court of Australia Act 1976 (Cth) to appoint a receiver to Comms Service Ops, SN Operations, Tech NSW, Tech QLD, Tech AUS, Tech VIC and Telcollect.

23    It was also contended before me that the appointment of a receiver would allow an investigation to be undertaken to ascertain which of those companies held the original contract with each customer. That investigation would enable a determination as to the number of customer contracts held by those companies which would govern the proportion of the net proceeds of sale of the Business that was applicable to the part of the Business that was owned by each company. This information was, in part, relevant to the relief sought by the liquidators.

24    On 28 March 2017, I appointed Sam Kaso, chartered accountant, as receiver and manager of the companies. The receiver was independent of all parties. Pursuant to my order, the receiver was responsible for the management of the Business owned and operated by the companies. As the price of the appointment I required the liquidators to give an undertaking as to damages. The appointment was done on prior notice to the defendants.

25    Since his appointment, the receiver has undertaken investigations into the affairs of the companies. In this process, the receiver has had limited access to the records of the companies for the period prior to his appointment. Despite numerous requests, Mr Harrison, being the person who the receiver understood to hold the records of the companies, has not provided the receiver with a copy of the books and records of the companies.

26    Since his appointment, the receiver has become familiar with an internet platform called “Utilibill”. Utilibill enables the establishment and maintenance of a database containing all customer data, including contact details, telephone or internet plans, dates customers joined or cancelled with the Business as well as account balances and charges. The receiver has identified that there are inconsistencies in the details recorded on the Utilibill platform, which had arisen due to the status of customers of the Business being labelled as “inactive”.

27    Based on the limited records within the receiver’s possession and control, the receiver together with persons for whom he has had management and supervision, have prepared documents setting out the structure of the companies. These documents set out a timeline of events leading to the current corporate group structure of the companies and, so far as is available on the information available to the receiver, a list identifying the number of customers attributable to the companies since the time of the receiver’s appointment.

28    Based on the information available to the receiver, as at his appointment there were 1093 customers who obtained services from the Business.

29    In accordance with the orders that I made appointing the receiver, the receiver together with his staff have prepared a detailed report based on the information and material available to him which, inter alia:

(a)    identifies which of Telco Service, Sure Telecom and the companies issued the original contracts to each customer of the Business;

(b)    outlines customer transfers; and

(c)    outlines the methodologies used by the receiver and his staff to carry out their analysis.

30    The receiver has also prepared a list which outlines which of the companies issued the original contracts of each customer of the Business. Since his appointment, the receiver has become aware of numerous customers of the Business who have discontinued their use of the services provided by the Business.

31    Since the receiver’s appointment, the Business has traded at a marginal position which the receiver attributes to:

(a)    expiring contracts with customers of the Business;

(b)    continuing service issues;

(c)    billing disputes with customers; and

(d)    non-payment of accounts by customers.

32    In the receiver’s assessment, the Business has and continues to experience a gradual attrition of customers and revenue due to expiring contracts, continued service issues, billing disputes and non-payment of accounts. Based on the current trading position of the Business, the receiver does not believe that the Business has good prospects of trading at a reasonable profit in the future under its current operation.

33    There is one other matter that I should deal with at this point. ACN 155 975 063 Pty Ltd (Wireline) is a judgment creditor of Comms Service Ops who appeared before me. Wireline also claims to be a secured creditor of Comms Service Ops based upon an interest registered on the Personal Property Securities Register. The PPSR registration states words to the effect that Wireline holds a registered security interest over “All rights and benefits held by the grantor with its clients”.

APPOINTMENT OF INTERIM RECEIVER

34    The scope of the power contained in s 23 of the Federal Court of Australia Act 1976 (Cth) is sufficiently broad to encompass the appointment of an interim receiver. In any event, there is a specific power to appoint an interim receiver conferred by s 57 of that Act, which is in the following terms:

Receivers

(1)  The Court may, at any stage of a proceeding on such terms and conditions as the Court thinks fit, appoint a receiver by interlocutory order in any case in which it appears to the Court to be just or convenient so to do.

(2)  A receiver of any property appointed by the Court may, without the previous leave of the Court, be sued in respect of an act or transaction done or entered into by him or her in carrying on the business connected with the property.

(3)  When in any cause pending in the Court a receiver appointed by the Court is in possession of property, the receiver shall manage and deal with the property according to the requirements of the laws of the State or Territory in which the property is situated, in the same manner as that in which the owner or possessor of the property would be bound to do if in possession of the property.

35    Sections 23 and 57 are supplemented by r 14.21 of the Federal Court Rules 2011 (Cth).

36    The condition on the grant of the statutory power under s 57 is expressed in broad terms, being where it is “just or convenient so to do”. It may be noted that the statutory power does not confine itself to the scenario of a Mareva receiver nor does it countenance a limitation on the exercise of the power or an implicit fetter based upon phraseology of the type: “the appointment of a receiver is an extraordinary and drastic remedy, to be exercised with utmost care and caution and only where the court is satisfied there is imminent danger of loss if it is not exercised” or the power “should be exercised only after great scrutiny and in extraordinary circumstances”. That is not the phraseology of the statutory power that I was requested to exercise and nor is any such limitation consistent with the authority of this Court. The applicable position is that stated by French J (as his Honour then was) in University of Western Australia v Gray (No 6) [2006] FCA 1825 at [71] where he stated:

The power of the Court to appoint a receiver is statutory. It has its origins, however, as an equitable remedy. An order in the nature of an equitable remedy can be made under s 23 of the Act. The class of circumstances in which such power may be exercised is not closed. Nor are the purposes for which a receiver may be appointed and the powers and conditions attaching to such an appointment. There may be many circumstances of considerable diversity which would warrant such an order and it is important that the discretion not be unnecessarily confined by any particular line of cases to which it has been applied.

37    In relation to the appointment of the interim receiver, it is appropriate that I record the following matters.

38    First, my orders of 28 March 2017 were expressed in the following terms (see at [2] to [8]):

2.    Subject to further order, Sam Kaso of Cor Cordis, Level 9, 360 Collins Street Melbourne (the Receiver and Manager) be appointed interim receiver and manager of the property of Comms Service Ops Pty Ltd (ACN 601 833 925), SN Operations Pty Ltd (ACN 606 419 121), Tech Group NSW Pty Ltd (ACN 607 173 893), Tech Group Qld Pty Ltd (ACN 607 173 893), Tech Group Aus Pty Ltd (ACN 607 173 919) and Tech Group Vic Pty Ltd (ACN 607 173 544) and Telcollect Pty Ltd (ACN 147 481 758), (the Companies) until the hearing and determination of the plaintiffs’ originating process.

3.    Without in any way limiting the powers, duties and rights conferred on the Receiver and Manager by Pt. 5.2 of the Corporations Act 2001 (Cth) (the Act) the Receiver and Manager is hereby empowered to:

(a)    identify the property (as defined in the Act) of the Companies;

(b)     take possession, custody and control of that property;

(c)     conduct the business of the Companies of providing telecommunications services to residential and small business customers (the Business); and

(d)     determine which of Telco Service Holdings Pty Ltd, Sure Telecom Pty Ltd and the Companies issued the original contract of each customer which comprise the Business.

4.    Subject to further order James Lee Harrison, the director of the Companies, shall hold that office subject to the powers, duties and rights conferred on the Receiver and Manager by Pt. 5.2 of the Act and by order 3.

5.    The Companies by themselves, their servants, agents or employees:

(a)    immediately deliver up to the Receiver and Manager the property held by the Companies and the books and records which relate to the property and the Business; and

(b)    otherwise use their best endeavours to assist the Receiver and Manager in performance of his obligations.

6.     During the period of the receivership and management:

(a)    the Receiver and Manager shall assume the management of the Companies and subject to order 7 shall perform the duties and may perform any of the functions and exercise any of the powers of the director of the Companies.

(b)    the provisions of the Act relating to the keeping of accounts, the appointment and re-appointment of auditors and the rights and duties of auditors shall continue to apply in relation to the Companies, and in the application of those provisions to and in relation to the Companies reference to the director of the Companies shall be read as reference to the receiver and manager of the Companies.

7.    The Receiver and Manager shall not have the power to sell or dispose of the Business, except with leave of this Court being first obtained.

8.    The following additional orders shall apply in relation to the Receiver and Manager:

(a)    the Receiver and Manager shall be entitled to reasonable remuneration and reasonable costs and expenses properly incurred in the performance of his duties and the exercise of his powers as Receiver and Manager, to be calculated on the basis of the time reasonably spent by the Receiver and Manager, his partners and staff in accordance with the Scale of Fees being exhibit SK-3 to the affidavit of Sam Kaso affirmed 9 March 2017, with such fees to be paid out of the assets of the Companies; and

(b)    the Receiver and Manager shall deliver an account for all amounts drawn by him for his remuneration, costs and expenses to the Court in the first instance by 28 April 2017 and every three months thereafter until the termination of the receivership and management or until further order and pay any balances as may be due to him or by him in such manner as may the Court direct.

39    Second, the orders were made after proper notice to the defendants and were not opposed.

40    Third, the plaintiffs gave an undertaking as to damages and in the circumstances I did not require a guarantee to be given.

41    Fourth, the appointment was designed to serve the following purposes:

(a)    The first purpose was to protect the assets so that they would not be further dissipated. In a sense, its purpose was analogous to a Mareva order. In circumstances where Mr Harrison had arguably shown a propensity to use corporate entities under his control for the purpose of transferring assets, including the transactions involving Telco Service and Sure Telecom and their assets, an order beyond a prohibitory injunction was necessary. In other words, an order for the preservation of assets was required going beyond simply an in personam restraint on the corporate defendants.

(b)    The second purpose was to enable the asset structure of the corporate defendants to be properly investigated to identify contracts relevant to the plaintiffs’ claims, in the absence of the cooperation of Mr Harrison and the corporate defendants in providing such information.

(c)    The third purpose was to facilitate a quasi-administration of the affairs of the corporate defendants who were and are in financial difficulties. There is precedent in an appropriate case to support such a purpose, particularly in Victoria. Judicial receivership for such a purpose was ordered for example in relation to the Massey-Ferguson Group (1980), Qintex Australia Ltd (1989), TEA (1983), International Harvester Australia Ltd (1982) and the Cooperative Farmers and Graziers Direct Meat Supply Ltd (1975). Receivership for conservation can be an appropriate purpose. But it should be stressed that a judicial receivership is not for a plaintiff, as for the witch in Hansel and Gretel, in order for it to “cage the defendant and fatten him up so he will make better eating, or at least to prevent him from wasting away” (National Australia Bank Ltd v Bond Brewing Holdings Ltd [1991] 1 VR 386 at 553).

(d)    The fourth purpose was to enable the companies to be properly managed in the context where Mr Harrison had been prevented from acting as a director by the direct or indirect effect of the orders of Moshinsky J.

42    Fifth, it is well apparent that the plaintiffs did not need to establish any legal or equitable interest in the assets of the companies in order to justify the appointment of the receiver. Although having said that, it seems to me that there were good arguments to suggest that the plaintiffs had an equitable interest through a constructive trust in the assets of the companies given the nature of the causes of action alleged and the fact that the third or fourth plaintiffs originally held the Business before each of the relevant impugned transactions in breach of statutory and fiduciary duties.

43    Sixth, the plaintiffs did not make any application under s 1323(1)(h) or s 1323(3) of the Act. Accordingly in appointing the receiver I did not invoke that otherwise available head of power.

44    Seventh, it should be apparent from what I have said that the appointment of the receiver was not pursuant to some friendly relationship between a creditor and the debtor company. The plaintiffs are in opposing interests to the companies. There is no suggestion that the receivership was designed to defeat or delay other creditors.

45    Eighth, notwithstanding the plaintiffs’ original position, which was to have one of the liquidators appointed as the receiver, I declined that request and appointed a receiver who was independent of all parties.

46    Ninth, in appointing the receiver there was no suggestion that his appointment conferred upon the plaintiffs a form of pre-trial security that they otherwise lacked.

47    Finally, I accept that before the practical fusion of law and equity, the Court of Chancery did not make available its remedy of receiver, and that after that fusion such a remedy has not generally been available (absent statutory power), as a means just for establishing a scheme for the administration of a financially embarrassed corporate debtor (National Australia Bank Ltd v Bond Brewing Ltd at 551). I say “generally” given the exceptions I have noted in [41(c)] above. But that says nothing about the breadth of the statutory powers that I have exercised under ss 23 and 57 of the Federal Court of Australia Act and their capacity to be cautiously utilised to achieving such an objective, but as ancillary to and supportive of the primary relief sought, its enforcement and the protection of this Court’s processes.

APPOINTMENT OF LIQUIDATOR

48    In my view, the interim receivership that I put in place has now outlasted its purpose. It is appropriate that the companies be placed into liquidation.

49    The receiver’s application is made, inter alia, pursuant to s 420(2)(u) of the Act, which provides that a receiver’s powers include the power “to make or defend an application for the winding up of the corporation”. And in determining an application by a receiver for the winding up of a company, it is appropriate to grant the relief if it is just and equitable that the company be wound up as provided for in s 461(1)(k). In The Commonwealth of Australia v ABC2 Group Pty Ltd (Court-appointed receivers and managers appointed) [2009] NSWSC 1442, Austin J stated that he was satisfied that the court-appointed receivers had standing to apply for a winding up order on just and equitable grounds and noted that while it was “odd” that a receiver was not expressly listed in s 462(2) of the Act (as one of the persons with standing to apply for a winding up), “the effect of s 420(2)(u) is plain” (at [38]). I do not see a difficulty with standing also under s 462(2)(a) if the receiver acts as agent for the companies and therefore in the companies’ names makes the application.

50    The classes of conduct which may justify the winding up of a company on the just and equitable ground are not closed and each application will depend upon the circumstances of the particular case.

51    Having regard to the following considerations, it is just and equitable that I make orders for the winding up of the companies:

(a)    First, there is a need for independent stewardship given the disqualification of the director. Mr Harrison was the sole director of each of the companies. The effect of the 2 March 2017 orders has the consequence that there would be no real prospect of Mr Harrison resuming control of the companies. It also appears unlikely that any other person will assume the role of director of the companies. Consequently, this is a case where I cannot in the absence of the receiver or some other external appointee, have confidence, in the propensity of the controllers to comply with their obligations. Independent stewardship of the companies is required.

(b)    Second, orders made in the ACCC substantive proceeding prevent the companies from operating the Business. As noted above, the 2 March 2017 orders were designed to prevent the companies from carrying on business in the telecommunications industry. Following the appointment of the receiver, orders were made on 31 March 2017 in the ACCC substantive proceeding to defer the commencement of the restraint upon the companies’ conduct of the Business (thereby permitting the receiver to continue to operate the Business). Under that order, each of the companies were restrained for a period of two years, from the date which is 30 days after the termination of the receivership of the companies, from carrying on a business or supplying services in connection with telecommunication (including as a retailer or wholesaler). It follows that when the receivership terminates, the orders made in the ACCC substantive proceeding would serve to extinguish the substratum or basis of the operation of the companies. Further, having regard to the effect of those orders, the companies’ position is akin to that of the company under consideration in ABC2, of which it was noted that, “there is no sensible prospect of ABC2 being resuscitated with new directors” (at [39]).

(c)    Third, the Business is in a state of decline. In the receiver’s 22 June 2017 affidavit, the receiver explained that the Business was experiencing a decline in customers and revenue and was facing a decline in profitability. As a consequence, the receiver did “not believe that the Business has good prospects of trading at a reasonable profit in the future under its current operation”. Further, the receiver’s assessment was that the best course of action for creditors of the companies and the remaining customers of the Business was for the Business to be sold.

(d)    Fourth, the receiver’s powers do not include a power of sale. The orders that I made on 28 March 2017 appointing the receiver provided: “The Receiver and Manager shall not have the power to sell or dispose of the Business, except with leave of this Court first being obtained”. If the companies were to be placed in liquidation, the liquidator would be empowered to sell the Business pursuant to s 477(2) of the Act. As noted in the receiver’s affidavit of 27 June 2017, the sale process is likely to take more time than is presently allowed for the post-receivership conduct of the Business under the orders made in the ACCC substantive proceeding (which, as noted above, permit the companies to carry on business for only 30 days after the end of the receivership).

(e)    Fifth, liquidation will provide a framework for determining creditors’ claims. The receiver’s affidavit of 27 June 2017 provides details of the companies’ known creditors. The total quantum of the creditors’ claims is approaching $2 million. The winding up of the companies will enable the claims of all creditors to be determined in accordance with the provisions of the Act that govern creditor claims in a liquidation, providing creditors and the liquidator with greater certainty than is available in the context of an interim Court-appointed receivership.

52    There are some other matters that I should refer to. First, liquidation is not opposed by the defendants. Indeed, in a formal sense, liquidation has been applied for by the receiver (see s 420(2)(u) of the Act which applies consistently with my orders of appointment of 28 March 2017) who is the agent of each of the companies. Second, on the material available to me, the companies are insolvent on both a balance sheet basis and a cash flow basis.

53    In the circumstances, the liquidation orders are appropriate and the receivership orders will be discharged. The receivership has served its purpose and in any event was only interim. Further, there is a public interest in now terminating the receivership. Further, there is no relevant unsatisfied or unresolved claim or aspect of the receivership that would make termination inappropriate. Moreover, I see no reason why the receiver cannot also be appointed as the liquidator. He is independent of the parties and was appointed under a judicial receivership rather than privately. Moreover, he has now undertaken considerable investigation of the affairs of the companies. It would be a waste of time and expense to appoint a new insolvency practitioner, contrary to the contentions of Wireline. I will also dispense with relevant notice requirements, including s 465A, as all that is occurring is the transition of the companies from being under the control of the receiver to being under the control of the same person as liquidator. No creditor will be prejudiced in such a transition by the absence of prior notice.

54    Finally, I should say for completeness that I have not seen it necessary to wind up the companies in insolvency as such; I have only used the just and equitable ground. Moreover, the termination power under s 434B(1) is inutile given the limitation in s 434B(4).

55    I will make the necessary orders to reflect these reasons.

Associate:

Dated: 28 June 2017

SCHEDULE OF PARTIES