Federal Court of Australia

Australian Securities and Investments Commission v A One Multi Services Pty Ltd (No 3) [2024] FCA 1209

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 461(1)(k) of the Corporations Act 2001 (Cth), the defendant, A One Multi Services Pty Ltd, be wound up.

2.    Michael McCann and Graham Killer of Grant Thornton be appointed as joint and several liquidators of the defendant for the purposes of the winding up.

3.    Upon appointment of Michael McCann and Graham Killer as the liquidators of the defendant, the receivership of the defendant shall terminate.

4.    The following orders insofar as they concern the defendant be discharged and have no further operation:

(a)    Order 10 of the Order dated 21 October 2021, as varied by the Orders dated 21 March 2022, 29 July 2022 and 1 March 2023;

(b)    Order 10A of the Order dated 21 October 2021, as inserted by Order 3 of the Order dated 29 July 2022 and varied by the Order dated 1 March 2023; and

(c)    Order 5 of the Order dated 29 July 2022.

5.    The defendant is to pay the plaintiff’s costs of this action, including any reserved costs, to be agreed between the parties or, failing agreement, as taxed.

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

REASONS FOR JUDGMENT

DERRINGTON J:

Introduction

1    The plaintiff, the Australian Securities and Investments Commission (ASIC), seeks final relief pursuant to an amended originating application which was recently filed in these proceedings. Relevantly, it seeks an order pursuant to s 461(1)(k) of the Corporations Act 2001 (Cth) (Corporations Act) that A One Multi Services Pty Ltd (A One Multi) be wound up on the just and equitable ground.

2    The present proceedings were commenced some time ago. ASIC initially sought various orders, including the appointment of receivers to the property of the defendant company, A One Multi, orders relating to the preservation of assets and disclosure, and orders against the directors of A One Multi.

3    In 2021, the Court made interim orders, inter alia, appointing receivers to the property of A One Multi.

4    Since then, the matter has proceeded in a relatively slow manner. That is not a criticism; rather, it reflects the difficulties which were encountered as a consequence of the fact that many of the company’s assets are, or were, held in cryptocurrency. It is well-known that cryptocurrency is extremely fungible and transferable via the internet, rendering it a form of asset in respect of which it is difficult for courts to impose any effective control. Ultimately, the receivers were unable to recover any, or any substantial amount, of the cryptocurrency over which they were appointed.

5    The parties have now agreed that A One Multi ought to be wound up. The case brought by ASIC in this Court was, on its face, relatively strong. However, little needs to be said about it, particularly because certain criminal proceedings against one of the directors of A One Multi are extant. Nevertheless, on the available evidence, there were substantial issues established relating to contraventions of the Corporations Act and the Australian Securities and Investments Commission Act 2001 (Cth) in relation to the management of third parties’ funds.

The winding up

6    Although it transpires that A One Multi is insolvent, the parties agreed that it ought to be wound up under s 461(1)(k) of the Corporations Act.

7    In the course of an earlier hearing in this matter, it was suggested that the winding up application be dealt with then. However, ASIC took the position, quite properly, that any order for winding up was subject to the Court’s discretion, and it appropriately identified that, whilst it sought the order, the required advertising for the purposes of winding up had not occurred at as that time. In the result, the Court made orders for the advertising to occur, and the evidence now before the Court establishes that it has occurred. No other creditor has appeared seeking to be heard on the application, though that is not surprising.

8    Ultimately, there is no reason why A One Multi should not be wound up, and an order should be so made. In the circumstances of this case, s 461(1)(k) of the Corporations Act is the correct basis for the winding up. That was agreed to by ASIC, the company itself, and the receivers of the company’s assets. There remains no real effective management of the company and there are no identifiable assets of any worth. Indeed, the claims of the receivers will overwhelm any presently identified creditors. In effect, A One Multi is now a non-functioning company.

Who should be appointed as the liquidators?

9    The real issue concerns the identity of the liquidators to be appointed. The current receivers of the company assets, Mr John Lindholm and Mr William Colwell of KPMG, seek to be appointed. Conversely, ASIC seeks the appointment of Mr Michael McCann and Mr Graham Killer of Grant Thornton.

10    Prima facie, when a plaintiff makes an application for the winding up of a company, it is generally assumed that the persons proposed by it, and in respect of whom consents have been filed, should be appointed as liquidators. That principle has been referred to in a number of cases: see, for example, Re El Zorro Transport Pty Ltd [2013] NSWSC 1082 [5]: though it can be accepted that the appointment always remains at the discretion of the Court.

11    As an aside, it may be apprehended that the principle of appointing the insolvency professionals proposed by the applicant for winding up has many disqualifying features to it. Experience has shown, all too starkly, that faithful adherence to the statutory duties required of liquidators and other external controllers, is often abdicated in favour of the pursuit of a profitable administration for the external controller. It seems that, in many cases, external controllers regard themselves as restructuring professionals who, regardless of whether they are liquidators, receivers, administrators or deed administrators, seek to embed themselves in any process by which a company or its business is revitalised. With that, they tend to gravitate towards the creditor or other interested party who is most likely to fund the work required. The abandonment of the independence which external controllers are obliged to observe can also be seen in the long-standing relationships which have developed between regular applicants for winding up and their lawyers on the one hand, and insolvency practitioners on the other. Whilst this is not the occasion to explore that further, the time must shortly arrive where the courts will, by necessity, be required to develop a new process for the appointment of external administrators, being one which is not founded upon extant deep-rooted relationships and associations between external controllers and the applicants for appointment or, perhaps more accurately, their lawyers.

12    In any event, as the law stands, there seems to be a prima facie entitlement for Mr McCann and Mr Killer to appointed as the liquidators of A One Multi.

13    Mr Betros, the solicitor appearing for the current receivers of A One Multi, directed the Court’s attention to a number of matters which might be said to justify their appointment as the liquidators, rather than those proposed by ASIC. The first of those concerned the amount of money which might be expended to allow any new external administrators to become familiar with the financial circumstances of A One Multi. That is a legitimate and relevant consideration. Mr Colwell has estimated that approximately $50,000 is required for that purpose. That evidence was unchallenged, and it can be accepted. Without more, the need to expend substantial funds in such a manner in respect of a company bereft of funds, is a matter which weighs in favour of appointing the current receivers as liquidators.

14    Mr Betros also submitted, with some force, that the costs of appointing Mr Colwell and Mr Lindholm are less than those associated with the appointment of Mr McCann and Mr Killer. The schedules for the amounts intended to be charged by each of the potential appointees are attached to their respective consents. There is some difference between the two scales of costs and, generally, KPMG’s is lower than Grant Thornton’s. To an extent, this also weighs in favour of appointing the receivers as the liquidators. However, the relevance of the different scales of costs should not be overstated. It is uncertain how the respective and competing parties might go about the performance of the required work. That is to say, the more expensive liquidators may be more efficient, resulting in cost savings, whilst the cheaper ones may be less efficient, resulting in an overall much higher cost. As was submitted by Mr Steele KC, counsel for ASIC, the receivership of the company’s assets has not proven to be a model of efficiency to date.

The potential for a conflict of interest

15    Very properly, Mr Betros identified that the receivers may have a prima facie conflict of interest if they are appointed as the liquidators. Nevertheless, their position is that, notwithstanding this potential conflict, it is practical and sensible for the Court to facilitate them becoming the liquidators of A One Multi.

16    The major point raised by ASIC in relation to this issue is that the receivers are currently, or claim to be, substantial creditors of the company. Pursuant to s 532(2) of the Corporations Act, a person must not, except with leave of the Court, seek to be appointed, or act, as a liquidator of a company if they are a creditor of the company with a debt exceeding $5,000. The legislative object of that section was recently identified in Michael, in the matter of Scenic Hinterland Day Tours Pty Ltd (in liq) [2023] FCA 1277 [23], as being to disqualify any person who has a past or present association with a company that would give rise to a potentially conflicting allegiance or would undermine the appearance of their independence: see also Re McGrath (2010) 266 ALR 642, 657 [50]; Re Perseus Mining NL; Ex parte Smith & Judge (1976) 2 ACLR 105, 107; Domino Hire Pty Ltd v Pioneer Park Pty Ltd (in liq) (2000) 18 ACLC 13, 19 [14]. It should be mentioned that, in that case, there was little reason to be concerned about the conflict because the liquidator proposed to be appointed was merely a substitute for a resigning liquidator from the same firm. The new liquidator would be in no more a position of conflict than the person they were replacing. That decision, which was relied upon in the receivers’ written submissions, is therefore not helpful in the present circumstances.

17    The difficulty here is that the receivers claim that substantial amounts are owing to them from the performance of their duties as receivers. Most importantly, they have claimed outgoings of some $550,000 for legal and other fees. They assert a lien, or an entitlement to a lien, to protect their right to recover those fees. To some extent, it may be apprehended that they do so on the basis of the principle in In re Universal Distributing Company Limited (in liquidation) (1933) 48 CLR 171, being that, where a party creates a fund available for the benefit of others, that party is usually entitled to the proper costs in establishing it. It should, however, be noted that ASIC raised issues about whether or not the lien is enforceable in the present case.

18    There is merit in that proposition, mostly because there is some issue as to the quantum of the amounts claimed and whether they are properly entitled to recover those fees. Secondly, there is some issue as to whether the fees and disbursements were expended in the course of creating the fund (or funds) which may come into existence. There is no need, at this point, to resolve the disputation about the issues surrounding the receivers’ entitlement to a lien. In short, the disputation is bona fide. There exists the potential for a real conflict of interest were the receivers to be appointed as liquidators, mainly because they would be in the position of having to consider the veracity of their own claims in relation to that lien. That is important where it is apparent that a not insignificant amount of money will come into the company in the future as a result of litigation which the receivers have instigated and pursued. That, of course, is relevant to their right and entitlement to the lien, but the facts and circumstances of that are beyond determination on an application such as this.

19    When one weighs the fact that the plaintiff is entitled to the liquidators of its choice, who do not have any disqualifying characteristics, against the fact that the current receivers have a potential conflict of interest, the decision is not difficult, simply because the Court ought to err on the side of ensuring entire independence in the administration of insolvent companies.

20    As mentioned, the receivers have raised in support of their appointment that they have the benefit of knowledge of the company and its affairs, and of the matters which are currently being litigated. Nevertheless, as Mr Steele KC correctly submitted, they are required to provide assistance as and when required by the liquidators under s 530A of the Corporations Act. That is a substantive obligation, though one might query how often it is enforced, and whether it should be from time to time.

21    Mr Roney KC, counsel for A One Multi (which supported ASIC’s position in relation to the identity of the liquidator), also correctly observed that the benefit of appointing the current receivers on the basis that they are more knowledgeable of the company’s affairs may be more chimerical than real. That is to say, the external administration of the company is nearing its end with, largely, only the recovery of money from litigation to be pursued. Although Mr Betros quite rightly pointed out that there may be other claims that are available, if they are of the nature which he identified, such as for breach of director’s duties, it would not be difficult for new liquidators to identify the availability of any such causes of action. There has already been a vast amount of evidence filed in these proceedings, and no doubt the knowledge of such matters will assist any liquidator in forming any necessary opinions.

Conclusion

22    In the result, because of the real potential of the receivers having a conflict of interest were they to be appointed liquidators, it is appropriate to appoint Mr McCann and Mr Killer of Grant Thornton as joint and several liquidators. It is also appropriate to order that the receivership, which occurred under the order of the Court, terminate on the appointment of Mr McCann and Mr Killer. This was not disputed by the parties. Indeed, there is no reason why the receivership should not be terminated, though that is not to deny the receivers any rights that they may have already acquired, and which remain vested in them.

23    The parties also asked that certain orders previously made in relation to the Court proceedings be discharged, and it is appropriate to make those orders as well.

Costs

24    The final issue which arises is in relation to the question of costs.

25    ASIC seeks an order that its costs be paid by A One Multi. As Mr Steele KC submitted, such an order would be in accordance with the usual order that costs follow the event. ASIC has succeeded substantially in obtaining the relief which it sought on its originating process as originally formulated and as amended. To some extent, the original relief sought was interlocutory, and ultimately, there was not a lot of disputation about the appointment of the receivers and other such matters, though that may be reflective of the strength of ASIC’s case, which is substantial, at least on the material filed. Ultimately, ASIC has been successful in relation to all the applications that it has made.

26    Mr Roney KC submits that, in some sense, an order requiring A One Multi to pay ASIC’s full costs would not be justified because there was some disputation which really did not relate to the company itself, including interlocutory proceedings relating to the receivers and disputation between ASIC and those receivers. There is some force in that and, in the ordinary course, one might think that A One Multi ought not be responsible for interlocutory squabbles of that nature.

27    However, in this case, the question evolved as to when and if the company should be wound up. It was ASIC’s intention for the company to be wound up, and it indicated that at an early stage. A One Multi could have pursued a winding up by a members voluntary winding up, had it so chosen but it did not adopt that course. The fact that the winding up proceedings continued for some time, and some significant costs have been incurred, is not to the point. It was ASIC’s intention to put A One Multi into liquidation and, though the path was not smooth, ASIC was ultimately successful.

28    The disputation in relation to the receivers is in another category, but that was a concomitant part of their appointment. Whilst the relationship between ASIC and the receivers was not a happy one, and there are still outstanding issues in relation to it, the necessity for the appointment arose, at least on the material before the Court, by reason of A One Multi’s conduct. So, whilst additional applications were required, the root cause of the receivership was the company’s conduct.

29    In those circumstances, there is nothing in the manner in which ASIC conducted its case which would warrant its costs being reduced in any way. For completeness, there is no point to be made from the fact that the originating application in its initial form did not include an application to wind up the company. The issue of whether it should be wound up or not was something which arose subsequent to the issuing of the proceedings, but it was appropriate for ASIC to pursue that step given the circumstances as they evolved.

30    It is appropriate to order that A One Multi pay ASIC’s costs of this action, including any reserved costs, to be agreed between the parties or, failing agreement, as taxed.

Associate:    

Dated:    17 October 2024