FEDERAL COURT OF AUSTRALIA

Warner (liquidator), in the matter of Sakr Bros Pty Ltd (in liq) [2019] FCA 547

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to section 90-15 of the IPS, the plaintiff, Anthony Warner, is justified in treating Sakr Bros Pty Ltd (in liquidation) (Sakr Bros) as an unsecured creditor in the sum of $1,397,261 in the winding up of Sakr Family Pty Ltd (in liquidation) (Sakr Family).

2.    Pursuant to section 90-15 of the IPS, the plaintiff, Anthony Warner, is in paying dividends to creditors of Sakr Family as proposed in the estimated dividends set out at Tab 13 of Exhibit AK1 to the affidavit of Mr Warner sworn 5 December 2018.

3.    Pursuant to section 90-15 of the IPS, the plaintiff, Anthony Warner, is justified in distributing any surplus in the winding up of Sakr Bros to its Class A shareholders in the proportion of shares held by them as recorded in the records of the Australian Securities and Investments Commission.

4.    Pursuant to section 488(2) of the Corporations Act 2001 (Cth), the plaintiff be granted special leave to distribute the surplus in the winding up of Sakr Bros.

5.    Pursuant to regulation 5.6.71 of the Corporations Regulations 2001 (Cth), the order authorising distribution of the surplus to a person entitled to it need not have annexed to it a schedule in accordance with Form 511.

6.    The requirements of rules 7.9 (2) and (3) of the Federal Court (Corporations) Rules 2000 (Cth), that the plaintiff publish a notice in accordance with Form 15, be dispensed with.

7.    The costs of these proceedings be borne equally by the estates of Sakr Bros and Sakr Family.

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

REASONS FOR JUDGMENT

GRIFFITHS J:

1    By originating process filed on 5 December 2018, the plaintiff, Mr Anthony Warner (Mr Warner) seeks relief in connection with the liquidations of two related entities: Sakr Bros Pty Ltd (in liq) ACN 001 078 388 (Sakr Bros) and Sakr Family Pty Ltd (in liq) ACN 001 693 894 (Sakr Family). Mr Warner is the sole liquidator of both Sakr Bros and Sakr Family.

2    There are 2 primary issues:

(a)    First, whether Mr Warner would be justified in treating Sakr Bros as an unsecured creditor of Sakr Family in the amount of $1,397,261 on the basis of the existence of a loan account between those entities and without the appointment of a special purpose liquidator to either entity and then paying dividends on that basis.

(b)    Secondly, whether, pursuant to s 488(2) of the Corporations Act 2001 (Cth) (Act) special leave should be granted to Mr Warner to distribute a surplus to contributories of Sakr Bros and, if so, whether he would be justified in distributing that surplus to the class A shareholders of Sakr Bros in the proportion of shares held by them, as recorded with the Australian Securities and Investments Commission (ASIC).

The evidence

3    Mr Warner relied on the following two primary affidavits:

(a)    his affidavit sworn 5 December 2018 and exhibit AK1 to that affidavit; and

(b)    the affidavit of Mr Peter Malone sworn 5 December 2018 and exhibit PM1 to that affidavit.

4    Mr Warner also relied upon an affidavit of service of Sundip Ghedia sworn on 16 April 2019, which deposes that the Court’s orders dated 7 March 2019 as to the giving of notice of these proceedings have been complied with. Mr Ghedia swore that he had been informed by Ms Karina Souza, an accountant employed by the plaintiff, that no response had been received in relation to a circular which was sent to shareholders of Sakr Bros on 13 March 2019, nor had any response been received to a circular which was set to shareholders of Sakr Family on 18 March 2019. He further deposes that he is informed by Ms Souza that no response has been received in relation to circulars which were sent to the shareholders of Sakr Bros and Sakr Family on 11 April 2019. Those circulars gave notice of the date fixed for hearing of the plaintiff’s application and described the orders made by the Court on 7 March 2019. Mr Ghedia also annexed correspondence which was sent by his firm to ASIC on 10 April 2019, to which there has been no response to date. ASIC was informed of today’s hearing.

Background facts

5    On 14 June 2012, Mr Warner and Mr Steven Kugel were appointed as liquidators of Sakr Family.

6    On 19 June 2012, Messrs Warner and Kugel were appointed as liquidators of Sakr Bros. Mr Kugel resigned as liquidator of both entities on 26 September 2014.

7    Mr Malone deposed that, following the liquidators' appointment to Sakr Family, he reviewed Sakr Family's financial statements for the year ended 30 June 2010 and identified that a loan appeared to be outstanding from Sakr Family to Sakr Bros in the amount of $1,397,261 (Sakr Family Debt). The companies' accountants have communicated to Mr Malone that they have traced the existence of the Sakr Family Debt to 30 June 1998.

8    Mr Malone states that an amount of $103,547 may be due to Sakr Bros by the “Tony Sakr Family Trust”. Mr Warner has been unsuccessful in eliciting information about this debt. Mr Warner intends to take steps to recover this debt, and separate debts due by Ms Bridgette Sakr and Mr Tony Sakr to Sakr Family.

9    On 20 November 2014, Sakr Family was admitted to proof in the winding up of Sakr Nominees Pty Ltd (Sakr Nominees) in the amount of $341,242, representing the balance of a loan made by Sakr Family to Sakr Nominees. This amount was subsequently received on 10 December 2014. Similarly, on 20 November Sakr Bros was admitted to proof in the winding up of Sakr Nominees in the amount of $450,255.

10    On about 10 December 2014, Sakr Bros received a dividend in the amount of $450,255 from the liquidation of Sakr Nominees because of the existence of a loan between those two entities. As Sakr Bros was also a shareholder of Sakr Nominees, on 20 June 2016, it received a distribution to members in the amount of $130,864. Similarly, on 10 December 2014, Sakr Family received a dividend in the amount of $341,242 for its loan to Sakr Nominees.

11    Sakr Bros has paid dividends in respect of outstanding employee superannuation entitlements and general unsecured claims at the rate of 100 cents in the dollar.

12    Mr Warner calculates that between $306,264 and $409,811 will be available for distribution to shareholders of Sakr Bros, with the variable being the recoverability of the loan to the Tony Sakr Family Trust.

13    The records maintained by ASIC in respect of Sakr Bros record that its share capital is divided into two classes: class A and class B. There are 11,440 fully paid class A shares (each with a par value of $1) and 4 fully paid class B shares (each with a par value of $1).

14    The class A shares are held as follows:

15    The class B shares are held by Marie Sakr (as to 1 share), Therese Sakr (as to 1 share) and Tony Sakr (as to 2 shares).

The first issue: treatment of the loan account

16    As there have been liquidation recoveries in Sakr Family, Mr Warner is in a position to declare a dividend to creditors. Mr Warner finds himself in a position of apparent conflict by reason of his dual role as liquidator of both the debtor (Sakr Family) and creditor (Sakr Bros). For that reason, Mr Warner seeks the relief claimed in prayers 1, 2 and 3 of the Originating Process.

17    Section 90-20(1) of the Insolvency Practice Schedule (Corporations) (IPS) (being Schedule 2 to the Corporations Act 2001 (Act)) permits a range of interested persons to apply to the Court for orders under s 90-15(1) of the IPS. By s 90-15(1), the Court may make such orders as it thinks fit in relation to the external administration of a company. Such orders may include an order determining any question arising in the external administration: s 90-15(3)(a).

18    The principles applicable to the exercise of the Court's power under section 90-15 of the IPS are, in effect, the same as those that applied to the exercise of the Court's power under ss 479(3) and 511 of the Act: Walley, in the matter of Poles & Underground Pty Ltd (Administrators Appointed) [2017] FCA 486 at [41]. The relevant principles were recently summarised by Black J in Re Octaviar Administration Pty Ltd (in liq) [2017] NSWSC 1556, where his Honour observed:

[7]    I summarised the scope of the Court’s power to give directions under s 479(3) of the Corporations Act in Re MF Global Australia Ltd (in liq) [2012] NSWSC 994; (2012) 267 FLR 27 at [7] as follows:

Section 479(3) of the Corporations Act allows a liquidator to apply to the court for directions in relation to a matter arising under a winding up. The function of a liquidator’s application for directions under this section is to give the liquidator advice as to the proper course of action for him or her to take in the liquidation: The liquidation of the Company is an “ongoing external administration”: s 1551, Corporations Act and reg 10.25.02 (2), Corporations Regulations. Div 90, IPS applies to ongoing external administrations: s 1615, Corporations Act. Sanderson v Classic Car Insurances Pty Ltd (1985) 10 ACLR 115 at 117; (1986) 4 ACLC 114; Re Ansett Australia Ltd (admins apptd) and Korda [2002] FCA 90; (2002) 115 FCR 409; 40 ACSR 433 at [46]. The court may give directions that provide guidance on matters of law and the reasonableness of a contemplated exercise of discretion but will typically not do so where a matter relates to the making and implementation of a business or commercial decision, where no particular legal issue is raised and there is no attack on the propriety or reasonableness of the decision: Sanderson v Classic Car Insurances Pty Ltd above at 117; Re GB Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674 at 686–7; 5 ACSR 673; 9 ACLC 1291; Re Ansett Australia Ltd above at [65]; Re One.Tel Networks Holdings Pty Ltd [2001] NSWSC 1065; (2001) 40 ACSR 83 at [32].

[8]    I also referred to the scope of the Court’s powers under s 511 of the Corporations Act in that decision and observed (at [8]) that:

Section 511 of the Corporations Act provides an alternative source of power to give such a direction and the Liquidators also rely on that section. The principles applicable to an application under that section were recently reviewed by Ward J in Re Purchas [2011] NSWSC 91 … Applications made under this section in a voluntary winding up are determined in a similar manner to applications in a court ordered winding up under s 479(3) of the Corporations Act notwithstanding that section does not expressly require that it be ‘just and beneficial’ to give the relevant direction. The court may give such a direction where it will be ‘of advantage in the liquidation’: Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209 at 212; Handberg v MIG Property Services Pty Ltd (2010) 79 ACSR 373 at [7]. The effect of a determination under the section is to sanction a course of conduct on the part of the liquidator so that he or she may adopt that course free from the risk of personal liability for breach of duty: Handberg v MIG Property Services Pty Ltd at [7].

[9]    I also recognise that the Court’s powers to give judicial advice and give directions under these sections are intended to facilitate the performance of a liquidator’s functions and should be interpreted widely to give effect to that intention, and the Court may give such advice or give such a direction where it is advantageous to the liquidation to do so: Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209 at 212; Handberg v MIG Property Services Pty Ltd [2010] VSC 336; (2010) 79 ACSR 373 at [7]; Re One.Tel Networks Holdings Pty Ltd [2001] NSWSC 1065; (2001) 40 ACSR 83; Re One.Tel Ltd [2014] NSWSC 457; (2014) 99 ACSR 247 at [32]; Re Octaviar Ltd (in liq) and Octaviar Administration Pty Ltd (in liq) [2017] NSWSC 1005…

19    I accept the plaintiff’s submission that the relief he seeks does not concern a merely business or commercial decision, and it is plainly to the advantage to the liquidation of Sakr Family. There is no suggestion in the material available to Mr Warner that the Sakr Family Debt is anything other than a legitimate transaction nor has any creditor of Sakr Family objected to the proposed orders. The Court is satisfied that the appointment of a special purpose liquidator would generate an unwarranted additional burden on creditors. For this reason, the Court accepts the plaintiff’s submission that that alternative option of appointing a special purpose liquidator is not to be preferred.

The second issue: special leave to distribute surplus

(a) Distribution to the class A shareholders

20    Mr Malone has described his unsuccessful attempts to locate the constitution of Sakr Bros, along with any shareholders agreement and company register. Accordingly, the only information that Mr Warner has available to him concerning the way that the share capital in Sakr Bros is held is the ASIC register. There is no way of ascertaining from the ASIC records what difference there is – if any – between the A class and B class shares.

21    The Court is satisfied that an order or direction should made that Mr Warner is justified in distributing any surplus to the class A shareholders in Sakr Bros, in accordance with the records maintained by ASIC. Without such a direction, Mr Warner may potentially be exposed to criticism for distributing (or not distributing, as the case may be) any surplus (subject to a grant of leave under s 488(2) of the Act). Such a direction should facilitate the performance of Mr Warner's functions, in circumstances where the relief sought relates to a legal, as opposed to a commercial, issue of significance in the winding up. As noted it is expected that there will be a surplus of between $306,264 and $409,811.

22    The Court accepts the plaintiff’s submission that, while there is an alternative for the surplus to be distributed to all shareholders (including class B shareholders), that alternative is not reasonably justifiable or necessary in circumstances where there is no evidence as to the rights attaching to the class B shares; the holders of class A and class B shares are substantially identical (except for Therese Sakr); and, on a pooled approach, the return to class B shareholders would be so small as to not warrant further consideration or recalculation of the amounts proposed to be paid to class A shareholders. To illustrate this point, 1/11,444 of the high range surplus equates to approximately $35.

(b) The application for special leave to distribute surplus

23    By section 488(2) of the Act, a liquidator may distribute a surplus only with the Court's special leave. The principles applicable to such an application were recently summarised in In the matter of Hawden Property Group Pty Ltd (in liq) (ACN 003 528 345) [2018] NSWSC 481; 125 ACSR 355 (per Gleeson JA) (Hawden Property). His Honour observed that:

[57]    The phrase “special leave” only requires that an application be made to the Court, rather than the matter being dealt with as part of some other administrative process: Maertin v Klaus Maertin Pty Ltd (in liq) (2009) 232 FLR 239; [2009] NSWSC 618 at [40]-[41] (Austin J) citing Re DS Millard & Son Pty Ltd (1997) 24 ACSR 71 (Young J); Re RH Trevan at [6]. The purpose of the provision is to ensure that there is, in reality, a surplus, in that creditors’ claims have been recognised and met in full, and that the correct relativities among the contributories have been observed: CGU Workers Compensation (NSW) Ltd v Ascom Service Automation (Australia) Pty Ltd [2005] NSWSC 747 at [4] (Barrett J).

24    Also in Hawden Property, Gleeson JA noted the relevant procedural requirements in respect of such an application. Those requirements are found in rule 7.9 of the Federal Court (Corporations) Rules 2000 (Cth) (Corporations Rules). That rule requires, relevantly, that the affidavit in support of the application for special leave to distribute a surplus must state how the liquidator intends to distribute the surplus, including the name and address of each person to whom the liquidator intends to distribute any part of the surplus. That requirement is satisfied here because, as noted above, it is proposed that any surplus be distributed to the holders of class A shares and they are identified in the evidence.

25    Rule 7.9(2) of the Corporations Rules requires that, at least 14 days prior to the date fixed for hearing of the application, the liquidator must publish notice of the application in a daily newspaper circulating generally in the State or Territory where the company has its principal, or last known place of business. The Court accepts the plaintiff’s submission that this requirement should be dispensed with, in circumstances where the unsecured debts of Sakr Bros have been paid in full and ASIC has been notified of the application: Hawden Property at [60].

26    Likewise, the Court accepts the plaintiff’s submission that the requirement to annex a schedule in accordance with Form 551, which arises under r 5.6.71(1) of the Corporations Regulations 2001 (Cth), should also be dispensed with because the present case is a simple one with no need for the adjustment of rights as between the contributories: Hawden Property at [63].

Conclusion

27    For these reasons, the Court is satisfied that this is an appropriate case in which to make orders in the form sought by the plaintiff.

Associate:

Dated:    18 April 2019