FEDERAL COURT OF AUSTRALIA

Natkunarajah (Liquidator), in the matter of FLY365 Pty Ltd (in liquidation) [2020] FCA 419

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to section 90-15 of the Insolvency Practice Schedule (Corporations) 2016 (Schedule), Vincent Joseph Pirina and Ian Malcolm Niccol be appointed as additional joint and several liquidators of FLY365 Pty Ltd (In Liquidation) (Company).

2.    Pursuant to 90-15 of the Schedule:

(a)    the summary of affairs of the Company and the list setting out the names of all creditors, the addresses of those creditors and the estimated amounts of their claims as shown in the records of the Company required to be given pursuant to section 497(1) of the Corporations Act 2001 (Cth) (Act); and

(b)    information in relation to the liquidation required to be given by sections 70-30 and 70-35 of the Insolvency Practice Rules (Corporations) 2016 (Rules),

(together, Notices) are to be given to creditors of the Company by:

(c)    publishing the Notices on the website maintained by the liquidators of the Company;

(d)    sending a copy of the Notices by email to the email address of each creditor to the extent that such email address is recorded in the books and records of the Company; and

(e)    where an email address is not recorded in the books and records of the Company but a postal address is recorded, sending by post the Notices to the postal address of each creditor at such postal address as is recorded in the books and records of the Company.

3.    The liquidators are justified in complying with their obligations under section 497(1) of the Act and sections 70-30 and 70-35 of the Rules by reference to the information then available to them from the books and records of the Company.

4.    The liquidators, within 7 business days of the making of these orders, are to take all reasonable steps to give notice of the orders to the Company’s creditors (and persons claiming to be creditors of the Company) by way of circular:

(a)    to be published on the website maintained by the liquidators;

(b)    sending a copy of the circular by email to the email address of each creditor to the extent that such email address is recorded in the books and records of the Company; and

(c)    where an email address is not recorded in the books and records of the Company but a postal address is recorded, sending the circular by post to the postal address of each creditor at such postal address as is recorded in the books and records of the Company.

5.    The Plaintiff has liberty to apply to the Commercial and Corporations Duty Judge on 24 hours’ notice.

6.    The Plaintiff’s costs of and incidental to this application be costs and expenses in the liquidation of the Company and be paid out of the assets of the Company.

7.    These orders be entered forthwith.

8.    The proceeding be referred to the National Operations Registrar for allocation to a docket Judge.

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

REASONS FOR JUDGMENT

GLEESON J:

1    On 2 March 2020, on the ex parte application of the plaintiff (liquidator or original liquidator), pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) (IPS), being Schedule 2 to the Corporations Act 2001 (Cth) (Act), I ordered that Vincent Joseph Pirina and Ian Malcolm Niccol be appointed as additional joint and several liquidators of FLY365 Pty Ltd (in liquidation) (company or FLY365).

2    I also made orders concerning the liquidators’ obligations to give certain information to creditors of the company.

3    These are my reasons for making those orders.

Background

4    The application was supported by an affidavit of the liquidator (and an accompanying exhibit marked “NN-1”) and an affidavit of Mr Pirina, and by a consent of liquidator form signed by both Mr Pirina and Mr Niccol.

Appointment of additional liquidators

5    The factual circumstances supporting the appointment of Mr Pirina and Mr Niccol are straightforward. In essence, the liquidation has turned out to be more burdensome than the liquidator had reasonably expected and he does not have sufficient resources to do all of the tasks urgently required.

6    The background to this situation is as follows:

(1)    The company operated an internet airline booking platform which arranged flights for customers by engaging third party ticketing agencies to obtain and issue flights to the company’s customers. Those ticketing agencies would extend credit to the company in respect of the tickets issued to the company’s clients.

(2)    On 20 February 2020, the liquidator was contacted by the company’s advisor, Mr Ozman Fayad, and asked to accept an appointment as liquidator of the company. Mr Fayad told the liquidator that the company had creditors totalling approximately $9 million (but not the number of creditors), that the company had some funds in bank accounts and that the liquidation of the company would not be large or complex.

(3)    The liquidator did not meet the company’s directors before his appointment. On the basis of the information provided by Mr Fayad and having conducted a conflicts search, on 21 February 2020, the liquidator was appointed as liquidator of the company pursuant to s 491 of the Act.

(4)    Had he known the true size and complexity of the liquidation, the liquidator would not have agreed to accept the appointment alone.

(5)    The liquidator presently believes that the company’s liquidation is occasioned by the lack of margin the company charged for this service. This created a cash flow shortage that could not be recouped from ordinary trading. The liquidator is currently investigating this hypothesis further, including if the directors (or any related parties of the company) contributed to the company’s liquidation.

7    During his first week as liquidator of the company, the liquidator learned the following:

(1)    over 28,000 tickets have been booked via FLY365 for travel from 21 February 2020, in Australia, Malaysia and New Zealand;

(2)    at least 1,677 tickets booked via FLY365 have been cancelled by Airtickets (a ticketing agency);

(3)    other tickets may have been cancelled by other ticketing agencies leaving customers with no flights and out of pocket for the flight costs;

(4)    the company maintained various bank accounts with the Commonwealth Bank of Australia. Customers of the company are seeking refunds (or “chargebacks”) from “banks” for tickets booked via the company which may reduce the total number of creditors but may also result in claims being made by the refunding banks against the company; and

(5)    several large (and presently unexplained) payments have been made from at least two of the company's bank accounts;

8    By the date of his affidavit, the liquidator had received hundreds of telephone and email inquiries from customers of the company.

9    Based on what was currently known, I accepted the liquidator’s assessment that the company may have several hundred, if not thousands of, creditors.

10    The liquidator identified an extensive list of urgent matters to be addressed in the liquidation and took on six extra contract staff to assist him. However, he concluded that his practice did not have the capacity to undertake them all. The liquidator formed the view that his practice was not sufficiently equipped to meet the needs of the liquidation given the likely extent of creditors and the tasks required to be done.

11    The liquidator approached the additional liquidators to propose the application for their appointment on 26 February 2020. The liquidator considered that it was in the interests of the company’s creditors to appoint additional liquidators to assist in the liquidation. Mr Pirina also considered that the liquidation would benefit from the appointment of the additional liquidators who have sufficient staff, experience and expertise to assist in the timely liquidation of the company.

12    The liquidator and Mr Pirina discussed and agreed on the following division of labour:

(1)    the additional liquidators will handle the immediate operational matters such as taking calls, answering emails, sending out notices, reconciliation of tickets issued and cancelled, notifying impacted parties and undertaking reconciliations of payments from bank accounts to suppliers; and

(2)    the original liquidator will concentrate on obtaining all of the books and records of the company and information from the directors, investigating payments that have gone out of the company’s bank accounts and negotiating set-off issues with the banks and ticketing agencies.

13    The liquidator’s evidence was that, in his view, this division of labour will mitigate against any risk of duplication of work and costs.

14    Mr Pirina’s view is that there will be no duplication of work as between the liquidator and the additional liquidators because the additional liquidators will support the liquidator in attending to the most immediate tasks of the liquidation and then take over control of the liquidation.

15    The liquidator considered that it was necessary and appropriate for him to continue as liquidator until such time as the additional liquidators are able to properly manage the liquidation without his involvement. This view was based on the cooperation that the liquidator has received to date from one of the directors, Mr Flizkok, and the knowledge of the company that he has acquired to date. The liquidator’s intention is to resign once urgent tasks identified in his affidavit are completed and he is no longer needed as a liquidator.

Legal framework

16    Section 90-15 (1) of the IPS provides: “The Court may make such orders as it thinks fit in relation to the external administration of a company.”

17    By s 90-20(1)(d), the liquidator is a person who may apply for an order under s 90-15.

18    On its face, the power conferred by s 90-15(1) is unconstrained. However, as Farrell J noted in GDK Projects Pty Ltd, in the matter of Umberto Pty Ltd (in liquidation) [2018] FCA 541 (GDK Projects) at [33], “it is difficult to envisage circumstances where the power would be exercised if the Court could not be satisfied that it would be just and unless the applicant had demonstrated sufficient utility to the external administration”.

19    The liquidator noted that, by s 90-15(3)(c), one of the orders the Court may make is to appoint “another registered liquidator” as the external administrator of the company. Section 90-15 has been used to order the appointment of “special purpose liquidators”: see, for example, GDK Projects.

20    The liquidator did not locate any case where s 90-15 has been used to appoint additional external administrators, jointly and severally, with the existing external administrator of a company. However, as the liquidator observed, the wording of s 90-15(3)(c) does not require that the additional external administrator have a “special purpose”, nor that the existing external administrator be removed. Further, and most importantly, the power in s 90-15 is unconstrained such that the appointment as presently contemplated is within power provided that it is just to exercise it.

21    In support of the proposed order, the liquidator made the following submissions:

(1)    Having regard to the matters set out in s 90-15(4) as matters that may be taken into account when making orders under s 90-15, it is relevant that the liquidator has faithfully performed his duties and is continuing to do so.

(2)    There can be no doubt that the liquidator’s conduct is appropriate and in adherence to his statutory and general law obligations. Instead of attempting to continue with the liquidation of the company alone (which is likely to be financially more advantageous to him) when it is apparent he lacks the resources to manage it alone (and thus risking the possibility of not faithfully carrying out his duties), he seeks the appointment of the additional liquidators to assist with urgent tasks and then intends (when appropriate) to retire from the role to avoid unnecessarily increasing the costs to the company’s creditors. He is clearly considering the best interests of the creditors.

(3)    It is clear that the liquidation of the company is larger and more complex than the liquidator can manage without the additional liquidators. The evidence makes clear that the liquidator would not have taken the role had he been able to determine the size and complexity of the liquidation prior to his appointment – the paucity of information provided prevented him forming that conclusion. The additional liquidators are more experienced in the conduct of large and complex liquidations. The additional liquidators have considered that, in their experience, the liquidation of the company would be assisted by their appointment.

(4)    The liquidator could not undertake all the urgent tasks required as he was being hampered by the hundreds of inquiries being received. The interests of creditors were served in having more liquidators with sufficient staff to undertake the many urgent tasks required to be undertaken. The creditors are also protected by an appropriate division of labour and the intended retirement of the current liquidator when he is no longer needed. However, given the need to supervise the staff to undertake many of the urgent tasks required, this is not merely a case where the liquidator can hire more staff. Finally, one of the additional liquidators’ staff has specialist airline industry experience that will assist the efficient management of the liquidation of the company.

22    I accepted that the matters identified by the liquidator amply demonstrated the utility to the liquidation of additional senior assistance. I accepted that the proposed appointment of the additional liquidators was a practical solution that was required urgently, and which will be executed with attention to minimising any duplication of costs in the interests of creditors.

23    Accordingly, I made an order that Mr Pirina and Mr Niccol be appointed as additional joint and several liquidators of the company.

Electronic notification

The problem

24    Pursuant to s 497(1) of the Act, the liquidator must, within 10 business days after the day of the meeting of the company at which the resolution for voluntary winding up is passed, “send” to each creditor of the company, a summary of the affairs of the company in the prescribed form and a list setting out the names of all creditors, the addresses of those creditors and the estimated amounts of their claims, as shown in the records of the company. In the present circumstances, that was required to be done by 6 March 2020.

25    The liquidator was also required to “give” creditors “initial information” and an “initial remuneration notice” pursuant to r 70-30 and r 70-35 of Insolvency Practice Rules (Corporations) 2016 (IPR) within the same time frame.

26    By s 28A of the Acts Interpretation Act 1901 (Cth), where an Act permits a document to be served on a person using, relevantly, the expression, “send” or “give”, s 28A(1) specifies methods by which the document may be served. Section 28A does not provide for electronic service.

27    However, the evidence of the liquidator was that the company communicated with its customers (being creditors of the company) primarily via email. By the time of swearing his affidavit, the liquidator had not identified any postal addresses of the customers of the company.

28    Further, the liquidator observed, it would be more cost effective (and thus in the better interests of the creditors as a whole of the company) to send communications by email.

29    The electronic notification provisions under s 600G of the Act do not presently assist the liquidator because, so far as he is aware, no creditor has given consent in accordance with s 600G(2) or s 600G(3).

30    At least in the context of administrations under Pt 5.3A of the Act, electronic means of communications are widely accepted, including because the giving of notices electronically saves both time and costs and conserves the limited available assets for the benefit of creditors: see In the matter of BBY Limited [2015] NSWSC 974 and the authorities cited at [7].

31    However, a question of power to require or permit electronic notification arises in the context of a creditors’ voluntary liquidation in light of In the matter of Accommodation Clearing House Pty Ltd (in liquidation) [2013] NSWSC 784.

32    In that case, the company had operated an internet-based hotel booking facility. The liquidators were advised that the company did not hold postal addresses or fax numbers for customers, but only email addresses.

33    At [6], Black J noted that there was no power corresponding with s 447A of the Act for the Court to modify the requirements of s 497 where a company is placed in voluntary administration.

34    At [7], his Honour noted that s 511 of the Act (a predecessor provision to s 90-15, but expressed in narrower terms than s 90-15) is not a power for the Court to vary the operation of the legislation. His Honour also considered whether s 511 would support a direction that the liquidators provide notice electronically. His Honour noted that a determination under s 511 had the effect of sanctioning 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. However, such a determination could not validate the course taken.

35    At [9], his Honour concluded that the Court should not exercise its discretion to make the direction sought. Thus, his Honour was satisfied that the Court had power to make such a direction. Even so, his Honour was not satisfied in the circumstances that it was of advantage to the liquidation to give a direction which authorised an act which was not, in terms, in compliance with s 497 of the Act. Those circumstances were that the problem faced by the liquidators was avoidable by an inquiry prior to their appointment, as to the company’s assets and liabilities, and would not have arisen had the company been placed in administration so as to obtain access to the wider range of powers conferred on the Court under s 447A.

36    At [10], Black J also noted that his Honour should not be taken to suggest that the course proposed by the liquidators was not, on its face, a practically sensible approach in the circumstances in which the liquidators found themselves. His Honour also observed that s 1322 of the Act may be available to allow acts that are in fact taken to be declared not to be invalid by reason of any contravention of the Act, where the Court is satisfied that, inter alia, they have acted honestly in that regard or that it is just and equitable that such an order has been made and even where the relevant act is undertaken intentionally rather than inadvertently.

Consideration

37    I was satisfied that the power in s 90-15 is wide enough to permit an order requiring the liquidator to provide the information referred to in s 497(1) and r 70-30 and r 70-35 electronically in the manner proposed. On the evidence, that is a practical and cost-effective way in which the liquidator can communicate with the company’s creditors where, on the evidence, the liquidator is not in a position to provide the relevant documents or information in one of the modes specified by s 28A of the Acts Interpretation Act.

38    It was plainly of utility to the liquidation to require electronic notification of the relevant information.

39    I was not satisfied that the Court should go as far as the liquidator had proposed, namely, make an order that electronic notification would be “validly given to creditors”. In my view, such an order is tantamount to seeking to vary the operation of the legislation. In the face of an explicit power to that effect in Pt 5.3A, in my view, s 90-15 could not be read to have such a broad operation.

40    However, I was satisfied that it was appropriate to make a direction that the liquidators were justified in complying with their obligations under s 497(1) of the Act and r 70-30 and r 70-35 by reference to the information then available to them from the books and records of the company. On the available material, there was no reason to think that the liquidators could or should have taken other steps to obtain postal addresses for the company’s creditors or that it would have been appropriate or feasible to place the company in administration rather than liquidation. Further, there is authority that, if an obligatory requirement in an Act cannot be complied with for some reason beyond the control of the person upon whom the duty is imposed, the obligation will not be insisted upon: D Pearce, Statutory Interpretation in Australia (9th ed, Lexisnexis Butterworths Australia, 2019), [11.28], referring to R v Leicestershire Justices (1850) 15 QB 88; 117 ER 391.

41    Although there is no present dispute between the liquidator and any creditor or creditors about his relevant obligations, where the liquidator is unable to send or give documents or information to creditors except by reference to information contained in the book and records of the company, I accepted that it was appropriate to make the direction to protect the liquidator against any future accusation that he has acted unreasonably: cf. In the matter of Ansett Australia Ltd and Korda [2002] FCA 90; (2002) 115 FCR 409 at [44].

Other matters

42    In order to give creditors an opportunity to apply for a variation or discharge of the orders made, I made an order requiring the liquidators to inform creditors of the orders and granted liberty to apply.

43    The matter was referred to the National Operations Registrar for allocation to a docket judge in anticipation of further applications, in particular, a possible application for relief under s 1322 of the Act.

Associate:

Dated:    1 April 2020