Federal Court of Australia

Coggan v Mt Cotton Village Child Care Centre Pty Limited [2021] FCA 1595

ORDERS

THE COURT ORDERS BY CONSENT THAT:

1.    The parties shall co-operate and do all things necessary to cause:

(a)    the Plaintiffs to have read only access to the 1st – 4th Defendants’ (Defendant Companies) Bank Accounts;

(b)    access by the Defendants to the Kindy Manager software;

(c)    the transfer of any and all funds from the previously frozen Commonwealth Bank of Australia accounts of the Defendants to the new or current bank accounts of the Defendants.

2.    Within 7 days of the ‘Kidsoft’ or other management software being operational at both the Mt Cotton and St Bernards Childcare Centre, the Defendants are to use their best endeavours to provide read only access to the Plaintiffs.

THE COURT ORDERS THAT:

3.    Liberty to apply on 2 days’ notice.

4.    The application for the relief in paragraphs 1 and 2 of the amended interlocutory application filed 22 November 2021 is dismissed.

5.    The Plaintiffs pay the Defendants’ costs in relation to paragraphs 1 and 2 of the amended interlocutory application filed 22 November 2021.

6.    In relation to paragraphs 2A-2D of the amended interlocutory application filed 22 November 2021, the costs be the parties’ costs in the proceeding.

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

REASONS FOR JUDGMENT

(Revised from transcript)

DOWNES J:

1    This is an interlocutory application within an oppression proceeding which proceeding has been brought pursuant to section 232 of the Corporations Act 2001 (Cth).

2    The first, second, third and fourth defendants comprise entities that own and operate two childcare centres, one at Mount Cotton and one at Mount Tamborine, both of which are located in Queensland.

3    Mount Cotton Village Child Care Centre Pty Limited is the company that operates the childcare centre at Mount Cotton. That entity operates the Mount Cotton centre as trustee of the Mount Cotton Village Trust.

4    Panially Pty Ltd is the company that owns the building at Mount Cotton and rents it to the first defendant, Mount Cotton VCC. That entity acts as trustee for the Panially Trust.

5    St Bernards Village Child Care Centre Pty Ltd is the company that operates the childcare centre at Mount Tamborine and it operates that centre as trustee of the St Bernards Village Investment Unit Trust.

6    St Bernards Village Investments Pty Ltd is the company that owns the building at Mount Tamborine and rents it to the trust, which operates the childcare centre located at Mount Tamborine.

7    Each of the corporate entities has four directors. Mr Scroope, Mr Dunn and Mr Leck are three of them and either Mrs Alison Coggan, or her husband Mr Larry Coggan, is the fourth director.

8    The Coggans in their personal capacity or as trustee of the Coggan Family Trust, own 25% of the shares on issue in each of the four entities referred to above and 25% of the units in the Mount Cotton Village Child Care Centre Trust, Panially Trust and the St Bernards Unit Trust.

9    The remaining 75% of the shares and units are held by the other directors, through their nominees and related corporate entities in equal shares.

10    By an amended application, an order is sought until further order of the Court, pursuant to sections 23 and/or 57 of the Federal Court of Australia Act 1976 (Cth) and rule 14.21 of the Federal Court Rules 2011 (Cth), that Matthew John Bookless and Anne Meagher of SV Partners Insolvency (Qld) Pty Ltd be jointly and severally appointed as receivers and managers of the property of each of Mount Cotton Village Childcare Centre Pty Limited, including the property held by it as trustee of the Mount Cotton Village Child Care Centre Trust and St Bernards Village Childcare Centre Pty Ltd, including the property held by it as trustee of the St Bernards Village Child Care Centre Unit Trust.

11    By paragraph 2 of the amended interlocutory application, incidental orders are sought to empower the receivers and managers to in effect, run the childcare centres, which are located at Mount Cotton and Mount Tamborine.

12    Turning to the proposed receivers – in the case of Mr Bookless, he had had no prior experience in operating a childcare centre and Ms Meagher’s previous experience was that she was involved in trading a childcare centre for a few days in 2012, when she was appointed as the liquidator of Playground Childcare Pty Ltd.

13    This is not to cast aspersions on either of those professionals. However, it is fair to say that their previous involvement with operating childcare centres is either non-existent or limited. There is evidence before the Court from Mr Bookless that there are other directors within SV Partners at the New South Wales office and Melbourne office who had involvement in operating a childcare centre. That experience being 15 years ago in one case, 10 years ago in another, and a third person having involvement as a treasurer of a childcare centre for three years (although it is unclear whether that was in a personal capacity or otherwise). Mr Bookless deposes that he and his staff could call upon those other directors for assistance and advice in running the childcare centres in this case.

14    The evidence also shows that an application has been filed by Mr Bookless and other staff for blue cards, to enable them to operate the childcare centre and that was done on 29 November 2021. It is not clear or established on the evidence how long it will take for those blue cards to be issued.

15    By contrast, the directors, who are the defendants in this proceeding, have appointed two individuals to operate the two childcare centres including, in particular, one Ms Angelina Brownsea. Her curriculum vitae is before the Court and she appears to have extensive experience in operating childcare centres and there is no evidence that she has any connection with any of the defendants, prior to being employed by them. In other words, she is an independent person, who is qualified and who has been brought in to operate the childcare centres, after taking over from the departure of Mrs Coggan.

16    The second person who has been retained by the defendant directors is Ms Louise Thomas. Ms Thomas somewhat ironically, was contracted by KordaMentha to assist in managing six childcare centres while they were in receivership in mid-2017 to 2018 and she also has appropriate education and experience, as indicated in an extract from her curriculum vitae which is also in evidence.

17    The heart of the application before the Court is that the plaintiffs, who no longer have day to day involvement in the operation of the childcare centres, have concerns about the manner in which the childcare centres are being operated and evidence has been put before the Court from parents and also staff about those matters.

18    It was submitted by the applicants’ counsel that, unless there is a change in management and independent receivers are appointed, then parents will leave, staff will leave and children will not be cared for properly and I was invited to take into account in effect, the interests of those children in making a decision about whether or not the receivers should be appointed. It was submitted that by the appointment of the receivers, someone independent will be able to perform the tasks necessary to operate the childcare centres.

19    When I had regard to the evidence from the parents, that was put on by the applicants, it is clear to me that the parents who did put in affidavits had a connection with Mrs Coggan and with her daughter, but also that quite naturally, the parents did not like the change in management and the change in processes at the centre and were unhappy that Mrs Coggan and her daughter were no longer at the centres.

20    I infer that if receivers were brought in and if they chose to change the management of the centres, these parents and other parents may be unhappy by a further change of management in such a short period of time.

21    However, I take into account from my own experience that external controllers who are brought in to manage companies usually retain existing staff unless there is not good reason to do so, and so the likelihood is that the receivers would be appointed, but they would continue to use the services of Ms Brownsea and Ms Thomas to operate the centres.

22    The problem would be then, of course, that there would be additional costs associated with their appointment which would be a further drain on these businesses, and while the receivers would be independent, no undertaking as to damages is offered by the applicants to meet those costs.

23    In Woods v Harrison, in the matter of Telco Service Holdings Pty Ltd (in liquidation) [2017] FCA 732, Beach J, at [36], stated as follows:

The condition on the grant of a 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 a power or an implicit fetter based on 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 that “should be exercised only after great scrutiny and in extraordinary circumstances”.

24    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.

25    The applicable position is that stated by French J, as his Honour then was, in The University of Western Australia v Gray (No 6) [2006] FCA 1825 at [71], where his Honour 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.

26    The focus of the application is whether it is just and convenient to appoint receivers in this situation, and I have already indicated some of the reasons why I do not consider it to be just and convenient to appoint receivers as is sought by the applicants.

27    Further reasons for not acceding to the application are as follows.

28    Mr Gordon Leck, who is one of the directors, affirmed an affidavit which sets out, first of all, that the directors have engaged accountants, Marsh Tincknell, to provide financial reports for the various entities. The financial reports are annexed to Mr Leck’s affidavit and sets out that the accounts show, in summary, that the net assets of the first and third defendants are in the order of $365,300. The net assets of the second and fourth defendants are in the order $2 million.

29    For the financial year ending 30 June 2021, the net profits made by the first defendant were $303,575 and for the financial year ending 30 June 2021, the net profits made by the third defendant were $167,735. Mr Leck deposes that the first and third defendants are not insolvent or in any danger of becoming insolvent. Mr Leck also deposes that there are no claims by external creditors that he is aware of and there are no financial or other risks to the businesses that would place them or the assets in jeopardy or require external management. Mr Leck also deposes that it is his belief, and that of the other defendant directors, that given the nature of the businesses, such an appointment would be detrimental to the entities which are likely to be required to meet the costs of such an appointment.

30    Further, the appointment of receivers will deny the defendant directors’ power to manage the companies as well as see a further change in the management of the centres in a very short period of time, causing further concerns to the client families. I agree with these concerns.

31    I raised with counsel for the applicants the prospect that the appointment of a receiver to the two childcare centres would likely give the impression to parents and to the community as a whole that each of the childcare centres was insolvent and that this was likely to cause further harm to the reputation and the businesses themselves than a simple change of management due to the suspension of Mrs Coggan and other staff members.

32    In a childcare centre, a change of management will not be welcome by everyone, but the appointment of a receiver would be regarded as something very bad by most people who are placing their children at that childcare centre, and it could actually result, in my view, in the failure of these businesses.

33    I have taken into account the affidavit of Mr Leck in particular because it sets out, in some detail, the steps that are being taken by the defendant directors to maintain the businesses. He also sets out that in relation to Mrs Coggan, against whom allegations have been made about the misappropriation of funds, that an independent forensic accountant has been engaged to investigate the allegations and this is consistent with a director discharging his duty for the benefit of the companies of which he is a director.

34    It is also a further indicia that the defendant directors who have a vested interest in the profitability of the childcare centres are unlikely to let these businesses deteriorate, but are likely instead to do their best to ensure that they thrive. There is contested affidavit material before me which points both ways in terms of allegations made by each side about concerns and interference with the businesses after the departure of Mrs Coggan, and I was told, of course, that I cannot resolve those factual disputes at this hearing.

35    In circumstances where no undertaking as to damages is offered and it is likely that the appointment of the receivers would have a very detrimental effect on the businesses, I do not regard it as being just and convenient to appoint the receivers as proposed by the applicants, particularly having regard to the level of their experience as compared to the staff members who have been installed by the defendant directors.

36    So in the circumstances, the applications in paragraphs 1 and 2 of the amended application are dismissed.

37    Application was also made in paragraphs 2A through 2D of the amended application; however, following exchanges of affidavits, submissions and upon hearing oral submissions, counsel for the parties have helpfully reached agreement about the form of orders which the Court should make in relation to access to documents by the plaintiffs, as well as other matters which were raised for the first time today, so I do not consider it necessary to deal with those particular applications.

38    I am prepared to make an order that there is liberty to apply on two business days’ notice to each other party as set out in paragraph three of the amended application.

39    I will make an order that the plaintiffs pay the defendants’ costs of and incidental to the application sought in paragraphs one and two on the amended interlocutory application and that otherwise, the costs of and incidental to the application in paragraphs 2A to 2D of the amended interlocutory application be the parties’ costs in the proceeding.

Associate:

Dated:    15 December 2021

SCHEDULE OF PARTIES