Federal Court of Australia
Vouris, in the matter of Zivaust Pty Ltd (in liq) [2022] FCA 1325
ORDERS
DATE OF ORDER: |
THE COURT ORDERS THAT:
1. Pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) contained in Schedule 2 of the Corporations Act 2001 (Cth), the first plaintiff (Liquidator) is justified and acting reasonably in proceeding on the basis that:
(a) the second plaintiff, Zivaust Pty Ltd (In Liquidation) (ACN 099 708 184), carried on business in its capacity as trustee of the Marie Gold Family Trust; and
(b) all assets and undertakings of Zivaust are properly characterised as property held by Zivaust in its capacity as trustee of the Trust (Trust assets).
2. Pursuant to s 63 of the Trustee Act 1958 (Vic), Zivaust shall have the power to act as trustee of the Trust in accordance with terms of the Trust Deed and to deal with, hold, apply and/or distribute the Trust assets.
3. Pursuant to s 1318 of the Corporations Act and/or s 67 of the Trustee Act, the Liquidator and the former liquidators of Zivaust be relieved from any liability for:
(a) having dealt with or realised the Trust assets; and
(b) having made payments from the proceeds of any such realisations, between the date of their appointments as liquidators of Zivaust and the date of this order.
4. Pursuant to s 90-15 of the Insolvency Practice Schedule, the Liquidator is justified and otherwise acted reasonably in proceeding on the basis that:
(a) the Liquidator and the former liquidators are entitled to be paid from the Trust assets their remuneration, costs and expenses properly incurred in preserving, realising or getting in the Trust assets, or in distributing the Trust assets, or in conducting the liquidations of Zivaust (remuneration and expenses); and
(b) the remuneration and expenses include the remuneration, costs and expenses of and incidental to this application (to the extent that it relates to Zivaust).
5. Pursuant to s 436B(2)(g) and s 448C(1) of the Corporations Act, leave be granted for the Liquidator to be appointed as:
(a) administrator of third plaintiff, The Marie D Company Pty Ltd (in liquidation) (ACN 004 338 970) (MDC), and administrator of Zivaust; and
(b) deed administrator of any deed of company arrangement entered into by MDC and/or Zivaust in the course of their administration by the Liquidator as administrator.
6. Pursuant to s 447A of the Corporations Act and s 90-15 of the Insolvency Practice Schedule, Pt 5.3A of the Corporations Act is to operate in relation to the administration of MDC and Zivaust (and any administration of a deed of company arrangement made in relation to MDC and/or Zivaust) on the following terms, which are to prevail to the extent of any inconsistency with the provisions of Pt 5.3A of the Corporations Act:
(a) there be no requirement that a first meeting of creditors in the administration of MDC and Zivaust be convened or held;
(b) s 438B(2) of the Corporations Act does not apply to the Liquidator’s administration of MDC and Zivaust;
(c) the Liquidator (as administrator) may convene and hold the meetings required under s 439A of the Corporations Act at any time during the convening period (as defined in the Corporations Act);
(d) any notices required to be given pursuant any provision in any of Pt 5.3A of the Corporations Act, Pt 5.3A of the Corporations Regulations 2001 (Cth), the Insolvency Practice Schedule or the Insolvency Practice Rules (Corporations) 2016 (Cth) is validly given to creditors of MDC and/or Zivaust by taking the following steps:
(i) where the Liquidator has an email address for a creditor, by sending the notice by email to each such creditor, irrespective of whether the creditor has nominated to receive electronic notifications of documents in accordance with s 600G of the Corporations Act;
(ii) where the Liquidator does not have an email address for a creditor, but has a postal address for the creditor (or has received notification of non-delivery of a notice sent by email in accordance with subparagraph ((6)(d)(i) above), by sending the notice by posting a copy of it to the postal address for each such creditor; and
(iii) by publishing the notice on the Australian Securities and Investments Commission (ASIC) published notices website appearing at https://insolvencynotices.asic.gov.au/;
(e) to the extent not permitted specifically by rr 75-30, 75-35 and 75-75 of the Rules, the Liquidator be permitted to hold meetings of creditors during the administration of MDC and Zivaust by telephone or audio-visual conference only at the place of the first plaintiff’s offices (without creditors of MDC and Zivaust being able to attend physically at that place), with such details of the arrangements for using the telephone or audio-visual conference facilities to be specified in each of the notices issued to creditors.
7. Pursuant to s 90-15 of the Insolvency Practice Schedule, the Liquidator, as administrator of MDC and Zivaust, is justified in:
(a) not requiring or receiving a ‘Report as to Affairs’ or ‘Report on Company Activities and Property’ from any of the directors (or past directors) of MDC and Zivaust; and
(b) not conducting investigations into, and reporting to creditors about, possible recovery actions that may be available in the event that MDC and/or Zivaust was to proceed to liquidation under the Corporations Act, pursuant to Div 12 Pt 5.3A of the Corporations Act.
8. Pursuant to s 482 of the Corporations Act, the winding up of MDC and Zivaust be stayed from the time that the Liquidator is appointed administrator of MDC and Zivaust until the date upon which the order sought in paragraph 9 below takes effect.
9. Pursuant to s 482 of the Corporations Act, upon the expiry of two business days after the Liquidator (in her capacity as deed administrator of any deed of company arrangement executed by MDC and Zivaust) gives written notice to ASIC of the full effectuation of that deed of company arrangement, the winding up of MDC and Zivaust be terminated.
10. There be liberty to apply to any person who can demonstrate sufficient interest to modify these orders on not less than 48 hours’ notice to the Liquidator.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
MCEVOY J:
1 Before the Court is an originating application filed on 8 July 2022. The first plaintiff, Kathleen Elizabeth Vouris (Liquidator), in her capacity as liquidator of the second plaintiff, Zivaust Pty Ltd (in liquidation) and the third plaintiff, The Marie D Company Pty Ltd (in liquidation) (MDC) (together, the Companies), make an application under s 90-15 of the Insolvency Practice Schedule (Corporations) contained in Schedule 2 of the Corporations Act 2001 (Cth), ss 436B, 447A, 448C, 482 and 1318 of the Corporations Act, and ss 48, 63, 63A and 67 of the Trustee Act 1958 (Vic) for orders determining questions arising in the liquidation of the Companies.
2 The first part of the application seeks orders in circumstances where Zivaust was formerly the trustee of the Marie Gold Family Trust and leave of the Court is required to address dealings with the Trust property. The second part of the application seeks orders allowing the Liquidator to be appointed as administrator of the Companies (and administrator of any deed of company arrangement (DOCA)), and various ancillary orders required to facilitate the proposed administration.
3 The proposed administration arises in circumstances where the Liquidator has executed a Settlement Deed that provides for the resolution of a dispute between relevant stakeholders being effected through the execution by the Companies of a DOCA. To give effect to that outcome the Liquidator applies for relief that will enable the Companies to be placed into administration, with the Liquidator appointed as administrator, so that the proposed DOCA contemplated by the Settlement Deed can be considered by creditors of the Companies.
4 The plaintiffs rely on the following material in support of the originating application:
(a) in relation to the orders sought, the affidavits of :
(i) Kathleen Elizabeth Vouris sworn 7 July 2022 (first Vouris affidavit);
(ii) Kathleen Elizabeth Vouris sworn 19 October 2022 (second Vouris affidavit);
(iii) Kathleen Elizabeth Vouris sworn 21 October 2022; and
(b) in relation to service of the documents and correspondence with interested persons, the affidavits of:
(i) Ayrton Christopher Roy affirmed 8 September 2022; and
(ii) Ayrton Christopher Roy affirmed 24 October 2022.
5 On 21 October 2022 the plaintiffs filed detailed and comprehensive written submissions in support of their application. These submissions were slightly varied after the hearing on 25 October 2022 to allow for the filing of additional material on and after 21 October 2022. I have drawn from these submissions extensively in the preparation of these reasons.
6 The precise orders sought by the plaintiffs were emailed to the Court on 24 October 2022. For the reasons that follow, orders have been made substantially in the terms sought.
Relevant circumstances
7 Marie Gold (deceased) is the late mother of Mrs Lewinsmith and Mrs Johnson (together, the daughters) and, prior to her death, had been the main shareholder of the Companies. The shareholders of MDC are the estate of the deceased and Zivaust, and Zivaust’s sole shareholder is the estate of the deceased. By reason of this shareholding arrangement within the Companies, any distributions made or dividends paid by the Companies will be to the sole benefit of the deceased’s estate.
8 As at the date of liquidation, Mr and Mrs Lewinsmith were the directors of MDC, with the deceased having previously been a director of MDC. On the Liquidator’s investigations, MDC was primarily established to manage an investment company. The Liquidator submits that at the time of liquidation there was only one unrelated creditor of MDC, that being Ben Kaplan & Associates (BKA), with all other creditors being related parties. Further, it is submitted that there are sufficient assets available in the liquidation of MDC to pay its creditors in full and pay a dividend to its shareholders: Zivaust and the deceased’s estate.
9 As at the date of liquidation, Mr and Mrs Lewinsmith were also the directors of Zivaust. On the Liquidator’s assessment Zivaust did not trade in its own right and was not the beneficial owner of any property or assets. Rather, Zivaust served as the trustee of the Trust from 25 February 2002, and held assets in that capacity (Trust assets). These assets include cash, debtors, shares and antiques. The Liquidator’s investigations reveal that all creditors of the Trust were unsecured and related parties.
Appointment of liquidators
10 Mr David Ross was appointed as liquidator of both MDC (in the context of a members’ voluntary liquidation) and Zivaust (in the context of a creditors’ voluntary liquidation) on 24 July 2019. By Court order dated 2 September 2020, Mr Ross’ appointment ceased and Ms Kristen Beadle was appointed liquidator of the Companies. Then on 24 February 2021, Ms Beadle’s appointment ceased by Court order and the first plaintiff, Ms Kathleen Elizabeth Vouris, was appointed as sole liquidator of the Companies.
The disputes
11 The deceased passed away on 24 September 2018. Her will made provisions for specific bequests to be made to her daughters, grandchildren and a great grandchild and for the appointment of Mrs Lewinsmith as the sole executor of her estate. Mrs Lewinsmith made an application in the Supreme Court of Victoria for probate of the will (the Supreme Court proceeding). Subsequently Mrs Johnson made an application in the Supreme Court proceeding objecting to Mrs Lewinsmith being the executor of the deceased’s estate and alleging misappropriation of funds. There were various other issues in dispute between the daughters (together, the disputes). The daughters requested that the liquidators refrain from taking steps to realise the assets of the Companies and the Trust pending the determination of the disputes.
Settlement Deed
12 On 21 December 2021 the daughters and Liquidator entered into the Settlement Deed. In addition to resolving the disputes between the daughters it is intended that the Settlement Deed will deal with:
(a) the payment of all unrelated creditors in full;
(b) the distribution of assets of the Companies and the Trust; and
(c) the termination of the liquidations.
13 It was agreed as a part of the settlement that after all unrelated creditors of the Companies have been paid in full and the remuneration, costs and expenses incurred in the liquidations have been met, all remaining assets of the Companies and the Trust (except for a small amount left in MDC to enable it to continue to trade) are to be distributed to the deceased’s estate, as shareholder, and to Mrs Johnson as beneficiary, under the will. Mrs Lewinsmith gave up her entitlement as creditor of the Companies and as a beneficiary under the will in exchange for retention of control of the Companies once their liquidation is terminated.
14 Clause 1 of the Settlement Deed provides, amongst other things, that the Companies enter into a deed of company arrangement (DOCA Proposal) such that:
(a) the Companies enter into voluntary administration with a view to executing a DOCA;
(b) the Liquidator be appointed as voluntary administrator and subsequently the deed administrator;
(c) the assets and undertakings of the Companies and the Trust will form the DOCA fund;
(d) the DOCA fund is to be applied as follows:
(i) first, to all the Liquidator’s remuneration and costs and the proposed administrator’s remuneration and costs;
(ii) secondly, payment to unsecured creditors;
(iii) thirdly, an amount to remain with MDC to enable it to trade; and
(iv) lastly, the balance paid to Mrs Johnson;
(e) all participating creditors having a right to prove in the DOCA will be entitled to do so in the same proportion they would have as if the DOCA fund was administered in the winding up of the Companies (save for certain excluded creditors such as the Lewinsmith parties); and
(f) the Liquidator would make an application to the Court prior to the full effectuation of the DOCA to terminate the liquidations of the Companies and upon such termination and effectuation of the DOCA, control of the Companies would revert to Mrs Lewinsmith.
15 Clause 2 of the Settlement Deed provides that in order to put the DOCA Proposal to the creditors, the daughters have requested that the Liquidator make an application to the Court seeking that:
(a) the Liquidator be appointed receiver and manager over the Trust assets;
(b) the Liquidator be appointed administrator of the Companies;
(c) the liquidations of the Companies be stayed;
(d) the first meeting of the creditors in the administration of the Companies be dispensed with; and
(e) the liquidations be terminated once the DOCA is fully effectuated, provided the respective creditors of the Companies so resolve at the second meeting of creditors.
16 However, since entry into the Settlement Deed the terms have been varied somewhat with the consent of the parties. Rather than the Liquidator being appointed as receiver and manager over the Trust assets, the parties instead seek an order that Zivaust have the power to act as trustee of the Trust and that the Liquidator is justified in dealing with the Trust assets in accordance with Pt 5.3A of the Corporations Act.
17 The daughters have given various warranties and indemnities, and procured written confirmation of waivers of their related beneficiaries, in relation to any specific bequests in the deceased’s will. Mrs Lewinsmith has also warranted that all creditors of the deceased’s estate, other than beneficiaries under the will, have been paid and all loans owing to the deceased’s estate have been fully discharged pursuant to clause 9 of the Settlement Deed.
18 On the Liquidator’s assessment there is no worse return to any unrelated party creditor under the terms of the DOCA Proposal than under a liquidation scenario. That is, all unrelated creditors of the Companies will be paid in full, 100 cents in the dollar. Additionally, the Liquidator submits that any related creditors are dealt with in the Settlement Deed and have consented to those terms. The Settlement Deed resolves all claims by related creditors without the need for adjudicating each claim individually and incurring additional costs. Accordingly, in the Liquidator’s view, the DOCA Proposal is the most cost effective and non-litigious manner in which to deal with the affairs of the Companies, the Supreme Court proceedings, the disputes, and the will. It resolves any possible litigation, and prevents any impact this may have had on distribution of the Companies’ assets.
Notice to interested persons
19 All related party creditors have been directly involved in the negotiations of the Settlement Deed and the Proposed DOCA, or have been consulted as to their terms. BKA is the only creditor, being the only unrelated creditor, which has not been directly involved in the negotiations. However, the Liquidator has deposed that she has notified BKA of the Settlement Deed, the Proposed DOCA and the application to this Court, and advised BKA that all claims will be dealt with under the Settlement Deed, including that BKA’s claim will be paid in full.
20 In accordance with the orders made in this proceeding on 10 August 2022, the Liquidator has notified all potentially interested persons of the application before the Court, and served them with the relevant documents. This includes all creditors of the Companies, beneficiaries of the Trust, and the Australian Securities and Investments Commission (ASIC). However, no creditors or interested persons have filed any material in opposition to the application or any notice of appearance prior to the hearing. When the matter was called on for hearing on 25 October 2022, no party appeared in opposition to the application.
RELEIF SOUGHT BY THE LIQUIDATOR
Proposed order 1: Zivaust as trustee of the Trust
21 Under the first proposed order, the Liquidator seeks confirmation that she is justified and acting reasonably in proceeding on the basis that:
(a) Zivaust carried on business in its capacity as trustee of the Trust; and
(b) all of Zivaust’s assets are properly characterised as property held by Zivaust in its capacity as trustee of the Trust.
22 Section 90-15 of the Insolvency Practice Schedule gives the Court broad powers to make orders in relation to the external administration of a company: see Rathner (liquidator), in the matter of Garrows Close Pty Ltd (in liq) [2021] FCA 505 (Beach J) at [6] and Deppeler, in the matter of Old Port Road Pty Ltd (in liq) [2021] FCA 980 (O’Bryan J) at [14].
23 Having regard to the enquiries made by the Liquidator and where there is no evidence that Zivaust traded or held assets other than in its capacity as trustee of the Trust, I accept that it is appropriate to make the orders sought in this respect, and have made them accordingly.
Proposed order 2: ability of the Liquidator to deal with Trust assets
24 Zivaust’s office as trustee of the Trust was terminated upon the appointment of Mr Ross on 24 July 2019 by reason of clause 19(b) of the Trust Deed, which provides that:
The office of a Trustee shall be ipso facto determined and vacated…if such Trustee being a company shall enter into liquidation whether compulsory or voluntary (not being merely a voluntary [liquidation] for the purpose of amalgamation or reconstruction).
25 Therefore, as of 24 July 2019, Zivaust has been a bare trustee of the Trust. In the absence of a Court order, the ability of a bare trustee (or its liquidator) to deal with trust assets is limited. Justice Gordon summarised the rights and powers of a bare trustee and its liquidator in Caterpillar Financial Australia Limited v Ovens Nominees Pty Ltd [2011] FCA 677, and at [26] noted that while a bare trustee may still hold trust assets, its “duties, powers and rights are limited to protecting the Trust assets”.
26 Therefore, the Liquidator of Zivaust, acting as a corporate trustee of a bare Trust, now seeks orders either giving her the power to deal with the assets of the Trust or appointing her as receiver. The plaintiffs submit that the current application and situation confronting Zivaust is a relatively common one. As was observed by O’Bryan J in Old Port Road at [16], applications of this kind are necessary when, by virtue of an “ipso facto” clause in the relevant deed of trust, a trustee company is automatically removed from office on the occurrence of a particular event, such as the appointment of a liquidator.
27 In Cremin, in the matter of Brimson Pty Ltd (in liq) (2019) ACSR 649, Moshinsky J stated the relevant principle as follows at 655-656 [49]-[50]:
It is now settled that the liquidator of an insolvent (former) corporate trustee cannot sell the trust’s property without order of the Court, or by appointment of a receiver over the trust assets: see [Jones (in his capacity as liquidator of Killarnee Civil & Concrete Contractors Pty Ltd (in liq)) v Matrix Partners Pty Ltd (2018) 260 FCR 310] at [44] per Allsop CJ (Farrell J agreeing at [196]); Re Stansfield DIY Wealth Pty Ltd (in liq) (2014) 291 FLR 17 at [10]; Apostolou v VA Corporation of Aust Pty Ltd [2011] FCAFC 103 at [45]. The rationale for this position is that, on a proper understanding, the trust assets are not the “property of the company”, but are instead trust property in which the corporate trustee has a proprietary interest by way of lien or charge to secure its right of exoneration: see Jones & Matrix at [89]. Thus, to the extent that the subject of a sale is the whole of a trust asset, rather than merely the company’s lien or charge in respect of that asset, it is not authorised by the power of sale in s 477(2)(c).
The courts are generally willing, upon an appropriate application, to make orders permitting the liquidator of a (former) corporate trustee to sell trust assets. In situations where the property of the trust will be exhausted following its sale and subsequent distribution to creditors, it may be appropriate merely to give the liquidator a power of sale: see Jones & Matrix at [91]. The more common course is, however, for the liquidator of the insolvent (former) corporate trustee to apply to be appointed a receiver for the purpose of selling the trust assets and distributing the proceeds among trust creditors.
28 However, contrary to what was said in Cremin, the Liquidator submits that the preferred outcome in present situation is not for her to be appointed as receiver over the property of the Trust, but rather for orders to be made allowing for her to deal with the Trust property. As O’Bryan J observed in Old Port Road at [17], there is no “bright line” that “provides assistance to the Court to determine whether, in cases such as this, the preferable course is to make orders permitting the former corporate trustee to sell assets or to appoint a receiver”.
29 In Caterpillar Financial at [30], Gordon J confirmed the Court’s power to make such orders to deal with trust property with respect to s 63 of the Trustee Act, observing that:
[T]he Federal Court has the power to authorise the Company as a bare trustee to deal with trust assets and apply trust assets to meet claims under s 556 of the [Corporations] Act in the course of the winding up of the Company.
30 The Liquidator seeks such orders allowing Zivaust to deal with the Trust assets, and submits that this will enable the affairs of the Trust to be “finalized prospectively and efficiently without the need to return to Court” through the effectuation of the DOCA. In the circumstances I considered that it was appropriate to make the proposed orders authorising Zivaust to act as trustee of the Trust pursuant to s 63(1) of the Trustee Act. Zivaust (and consequently the Liquidator) will therefore be able to deal with, hold, apply and/or distribute the Trust assets accordingly, and thus carry out the terms of the DOCA.
Proposed order 3: provisions of the Corporations Act applicable to distribution of assets in an ordinary liquidation
31 Paragraph 3 of the plaintiffs’ proposed orders would allow the Liquidator to deal with the Trust assets in accordance with Pt 5.5 and Pt 5.6 of the Corporations Act. The plaintiffs submit, however, that the relief sought in paragraph 3 will not be pressed if the Court grants the relief sought in paragraphs 7 to 11. It was noted by counsel at the hearing that the order at paragraph 3 would only be required where orders were not granted for the appointment of an administrator to the Companies (and so the Companies remain in liquidation), and Pt 5.5 and Pt 5.6 of the Corporations Act apply in the distribution of Trust assets in an ordinary liquidation.
32 For the reasons I explain further below, I have made orders 7 to 11 sought by the plaintiffs which allow for the appointment of the Liquidator as administrator to the Companies. Therefore, I have not made the order sought at paragraph 3 of the plaintiffs’ proposed orders, and it is unnecessary for it to be considered further.
Proposed order 4: relieving the liquidators from liability
33 In the course of discharging his role as the then liquidator of Zivaust, Mr Ross dealt with property of the Trust at a point in time when Zivaust had in fact ceased to hold office as trustee, and was a bare trustee (pursuant to clause19(b) of the Trust Deed, as mentioned). Specifically, Mr Ross sold certain antique artefacts. It is submitted by the Liquidator that Mr Ross’ decision to sell the artefacts was made in circumstances where their assessed value was modest relative to the costs of ongoing storage. Additionally, it is submitted that the liquidators’ remuneration (as approved by the creditors) had been paid from cash reserves that constitute property of the Trust (also while Zivaust was a bare Trustee). It is submitted that this was done in circumstances where there was no non-trust property of Zivaust.
34 The Liquidator seeks an order pursuant to s 1318 of the Corporations Act and/or s 67 of the Trustee Act that both she and any previous liquidators of Zivaust be relieved from any potential liability arising from the dealings with the Trust property. The purpose of s 1318 of the Corporations Act, so the Liquidator submits, is to excuse company officers from liability in situations where it would be unjust and oppressive not to do so, recognising that such officers are business persons who act in an environment involving risk in commercial decision making: see in this regard, Re Matthew Forbes Pty Ltd (in liq) [2018] VSC 331 (Riordan J) at [24]. Additionally, with respect to s 67 of the Trustee Act, the Liquidator notes Gordon J’s observation in Caterpillar Financial at [33] that s 67 empowers the Court to excuse a breach of trust by a trustee who has acted honestly and reasonably.
35 In the circumstances I am satisfied that Mr Ross was acting honestly and reasonably in realising the artefacts and it would be unjust and oppressive not to excuse him from any liability that might arise. Additionally, I am satisfied that there were no non-trust assets from which the liquidators could meet their costs and remuneration. Therefore, the Liquidator and/or any previous liquidators of Zivaust were acting honestly and reasonably in, after first obtaining creditor approval of their remuneration fees, making such payments from the cash reserves of the Trust. I have therefore made the orders sought in this respect.
Proposed order 5: liquidators’ remuneration and expenses paid from Trust property
36 As set out in the first Vouris affidavit, part of the remuneration of Zivaust’s successive liquidators has already been approved by creditors, and a limited portion of which has been met from cash reserves held by Zivaust. An order is therefore sought to confirm the Liquidator’s entitlement to be indemnified out of the Trust property in respect of the remainder of the costs of the winding up.
37 As previously noted, Zivaust acted only as trustee of the Trust and held assets in this capacity only. Zivaust held no assets of its own. In these circumstances, and where such an arrangement has already been contemplated and indeed agreed to by the relevant parties in the Settlement Deed, I am satisfied that it is appropriate for the Liquidator’s remuneration and expenses to be paid out of the Trust assets. As Black J noted in In the matter of JML Property Services Pty Ltd (in liquidation) [2018] NSWSC 1069 at [10]:
[T]he case law establishes that a liquidator of a trustee company is entitled to be paid his or her remuneration, whether for administering the trust assets or for general liquidation work, out of trust assets where that company has no assets other than its rights against the trust assets.
38 I also consider it appropriate that the costs of this application (to the extent that they relate to Zivaust, rather than MDC) be met from the Trust property.
Proposed order 6: liberty to apply
39 Proposed order 6 gives liberty to apply on not less than 48 hours’ notice to the Liquidator to any person who can demonstrate sufficient interest in the matter. In oral submissions counsel for the plaintiffs submitted that liberty to apply may be better placed at the conclusion of the orders, to avoid any doubt that liberty was reserved to the liquidation and administration of both Zivaust and MDC. I consider this to be appropriate and have made such an order.
Proposed orders 7 to 11: administration of the Companies
40 As mentioned, clause 2 of the Settlement Deed provides that the daughters “have requested that the Liquidator make an application to Court” seeking specified relief that is directed towards the DOCA Proposal being put to creditors of the Companies for approval. That clause informs the making of the application before this Court by the Liquidator for the relief sought in proposed orders 7 to 11.
Proposed order 7: Liquidator to be appointed as administrator and deed administrator
41 It is submitted that it is necessary for an administrator to be appointed to the Companies in order for the DOCA Proposal to be considered by the Companies’ creditors. Section 436B of the Corporations Act allows for a liquidator to appoint an administrator to a company if he or she thinks that that the company is insolvent or is likely to become insolvent at some future time. The Liquidator deposes in the second Vouris affidavit that if certain proposed claims are made against the Companies then she believes that MDC may be insolvent or may become insolvent in the future. The Liquidator already considers Zivaust to be insolvent.
42 Sub-section 436B(2) of the Corporations Act limits the power of a liquidator to appoint an administrator, providing that a liquidator cannot appoint himself or herself, unless leave of the Court is obtained. Additionally, s 448C of the Corporations Act provides that a person must not, except with leave of the Court, seek or consent to be appointed as administrator of a company or a DOCA if the person is an officer of the company, which includes a liquidator.
43 By paragraph 7 of the proposed orders, the Liquidator seeks the requisite leave of the Court to be appointed as administrator of the Companies and as deed administrator of any DOCA entered into by one or both of the Companies in the course of their administration.
44 The Liquidator highlights that a similar application was recently considered by Osborne J: In the matter of Merchant Overseas Logistics Pty Ltd [2022] VSC 154. In considering whether a liquidator was an appropriate person to be an administrator, his Honour considered the following factors as relevant at [29]:
(a) The proposed appointees’ familiarity with the business and affairs of the subject companies;
(b) The likely reduction in duplication and associated costs where a liquidator is appointed as administrator, including where considerable work has already been undertaken; and
(c) Where continuity of appointees is desirable having regard to ongoing negotiations and/or complex arrangements.
45 Justice Osborne noted at [31] that it is well established that, provided there is no potential for conflict, where considerable work has already been undertaken by a liquidator it will usually be in the creditors’ interests to grant leave for the appointment of the liquidator as administrator, as it will save time, trouble and expense in the course of the administration.
46 The Liquidator contends that appointing her as administrator would be the most efficient and cost effective course, and therefore in the best interests of the creditors. She contends that given she is already a party to the Settlement Deed (which allows for the administration to occur), and given her existing knowledge and in-depth understanding of the Companies’ affairs due to her position as Liquidator, such an appointment will lower the costs of the administration for the Companies. She also contends that substantial work in connection with the external administration of the Companies has already been undertaken, which would therefore not need to be repeated if such an appointment were made.
47 The following key considerations were submitted by the Liquidator in support of granting leave:
(a) the appointment of another person as the administrator/s would invariably result in a duplication of work and the incurring of costs. It is submitted that this should be avoided, especially in circumstances where the Companies have had three different liquidators appointed since July 2019;
(b) notice of the relief sought has been provided to all creditors, ASIC and possible interested persons, and none have sought to oppose the application or orders sought; and
(c) there is no evidence or any suggestion that the appointment of the Liquidator to conduct an administration for the purpose of enabling creditors to consider the DOCA Proposal would be contrary to the public interest.
48 For the reasons advanced by the Liquidator above, I consider that it would be in the creditors’ best interests to have the Liquidator appointed as administrator of the Companies and administrator of any DOCA. I have therefore made the orders in the terms sought.
Proposed orders 8-9: conduct of the proposed administrations
49 The Liquidator seeks ancillary relief under s 447A and Pt 5.3A of the Corporations Act and s 90-15 of the Insolvency Practice Schedule, regarding the manner in which the administration of the Companies is to be conducted. It is submitted that the relief sought is analogous to that granted by Osborne J in Merchant Overseas Logistics, where his Honour was satisfied that such orders would facilitate the efficient administration of the subject company.
50 The relief sought is as follows:
(a) dispensation of the requirement for a first meeting of creditors in the administration of the Companies. It is contended that s 436E of the Corporations Act confirms that the purpose of a first meeting of creditors is to provide creditors with an opportunity to determine whether a committee of inspection should be appointed and the prospect of removing the administrator and appointing an alternative administrator. However, the plaintiffs note that given the circumstances in which the administration will commence, and where the objective is to provide creditors with an opportunity to consider the DOCA Proposal, a first meeting of creditors would serve no substantive purpose as contemplated by s 436E of the Corporations Act. They note that it would only be productive of unnecessary costs;
(b) non-application of s 438B(2) of the Corporations Act. This section obliges a director to give an administrator a report about the company’s business, property, affairs and financial circumstances. The plaintiffs submit that in light of the fact that the Companies have already been in liquidation for some years and investigations have already been undertaken into the Companies’ business, property, affairs and financial circumstances, the provision of such a report would serve no real purpose;
(c) flexibility regarding the timing of the meeting required by s 439A of the Corporations Act. This section requires such a meeting of creditors to be convened within five business days before, or within five business days after, the end of the convening period. The Liquidator notes that while a meeting of creditors of the Companies will be convened to provide the creditors with an opportunity to consider and approve the DOCA Proposal, an order should be made to enable the meeting to be held at any time during the convening period, being 20 business days beginning on the day after the administrations begin. It is submitted that this is appropriate given the particular circumstances of these proposed administrations, particularly that liquidations will have preceded any appointment of the administrator;
(d) the provision of notice to creditors during the administration be provided by way of email. The Liquidator contends that the grant of such relief is increasingly routine, and would save time and costs, thus conserving the assets available for the benefit of creditors: see Strawbridge, in the matter of Virgin Australia Holdings Ltd (administrators appointed) (2020) 144 ACSR 310 (Middleton J) at 317 [27] and In the matter of BBY Limited [2015] NSWSC 974 (Brereton J) at [7]; and
(e) holding of meetings via telephone or audio-visual conference. It is also contended that such a practice has become routine in recent years and will enable creditors to participate remotely.
51 The Liquidator submits that the Court in Merchant Overseas Logistics also made the following directions:
(a) dispensation of the requirement for the administrator to require the Companies’ directors to prepare and provide a ‘Report on Company Activities and Property’ and/or a ‘Report as to Affairs’; and
(b) relief from the requirement to conduct investigations into, and report to creditors about, possible recovery actions that may be available.
52 Such relief is also sought by the Liquidator in paragraph 9 of the proposed orders. It is submitted that such relief is appropriate for the same reasons previously stated, namely that the Companies have been in liquidation for a period of some years, extensive investigations have already been undertaken, and detailed reports have already been provided to creditors.
53 I am satisfied that orders in these terms regarding the manner in which the administration of the Companies is to be conducted will facilitate the efficient administration of the Companies, especially having regard to the preceding liquidation. I have therefore made the orders sought in paragraphs 8 and 9 of the plaintiffs’ proposed orders.
Proposed orders 10-11: stay and termination of windings up
54 It is noted that in circumstances where the Liquidator is appointed as administrator of the Companies, the status of the respective windings up needs to be addressed. To that end the Liquidator seeks orders under s 482 of the Corporations Act that the windings up be stayed from the date of the Liquidator’s appointment as administrator and the windings up then terminated if and when the Liquidator (as deed administrator) gives notice that the DOCA is fully effectuated. The plaintiffs’ submissions note that in Merchant Overseas Logistics Osborne J considered that the relief sought under s 482 of the Corporations Act is properly to be regarded as part of a suite of orders to facilitate consideration by the Companies’ creditors of the DOCA Proposal and, if approved, its implementation: see [57].
55 The Court has a discretion in deciding whether to order a stay or termination of a winding up: see Merchant Overseas Logistics at [48]. It is submitted that in the present case the windings up of the Companies should be stayed for the purpose of creditors being afforded an opportunity to consider the DOCA Proposal. If the creditors approve the execution of a DOCA that reflects the DOCA Proposal, and that DOCA is fully effectuated, only then will the windings up be terminated.
56 Clause 1(a)(xv) of the Settlement Deed provides that the DOCA will be effectuated when:
(A) all required contributions under the DOCA have been paid;
(B) all other obligations of all parties under the DOCA complied with to the satisfaction of the Deed Administrator;
(C) the Deed Administrators have so certified in writing; [and]
(D) the Deed administrator have distributed the DOCA Fund.
57 Additionally, the Liquidator submits that where the DOCA is to be substantially in the form of Schedule 8A to the Corporations Regulations 2001 (Cth), it will provide (as is provided at item 5 of Schedule 8A) that creditors must accept their entitlements under the deed of company arrangement in full satisfaction of all claims against the Companies. Accordingly, so the plaintiffs submit, upon the effectuation of the DOCA the Companies will be solvent. It is contended that this is a relevant consideration for the application to stay/terminate the winding up under s 482 of the Corporations Act.
58 Further, it is submitted as relevant that all interested parties have been notified of the application and no one has opposed the proposed course of action. It is submitted that the proposed course does not present a risk to the public interest or possible future creditors, and therefore that it is appropriate for the Court to exercise its discretion and make the orders in the terms proposed.
59 For the reasons advanced by the Liquidator I have made the orders sought. Accordingly there is an order for the stay of the windings up of the Companies when the Liquidator is appointed as administrator, and an order for the termination of the windings up to occur when the DOCA has been fully effectuated.
I certify that the preceding fifty-nine (59) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McEvoy. |
