Federal Court of Australia

Deputy Commissioner of Taxation v Starcrest Construction Pty Ltd (Receivers and Managers Appointed) [2024] FCA 1254

ORDERS

THE COURT ORDERS THAT:

1.    Leave be granted pursuant to s 198G(3)(b) of the Corporations Act 2001 (Cth), for Gerhard Horst Heinrich to exercise his power as sole director of the Applicant to bring the application filed on 5 August 2024 in the name of the Applicant.

2.    The Interlocutory Application dated 5 August 2024 be dismissed.

3.    The orders of Registrar Luxton made on 17 July 2024 are affirmed.

4.    The costs incurred by the Deputy Commissioner of Taxation, WorkCover Queensland and Big River Group Pty Ltd, of and incidental to the Interlocutory Application be taxed if not agreed between the Commissioner, WorkCover Queensland and Big River Group Pty Ltd, and the Liquidator of the Applicant, and reimbursed in accordance with s 466(2) of the Corporations Act 2001 (Cth).

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

REASONS FOR JUDGMENT

DERRINGTON J:

Introduction

1    On 17 July 2024, on the application of the Deputy Commissioner of Taxation (the Commissioner), a Registrar of this Court made orders to wind up the defendant company, Starcrest Construction Pty Ltd (Starcrest), and appointed Mr Derrick Vickers of PriceWaterhouseCoopers as its liquidator. By an application dated 5 August 2024, the sole director of Starcrest, Mr Gerhard Heinrich, seeks to review the Registrar’s orders pursuant to s 35A(5) of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act) on behalf of the company. In particular, he seeks to set aside the order appointing Mr Vickers and asks the Court to appoint alternative liquidators in his place.

Background

2    The relevant circumstances which culminated in the making of the Registrar’s orders, are as follows.

3    On 1 February 2024, the Commissioner issued Starcrest with a statutory demand in the amount of some $4.388 million. On 14 June 2024, following Starcrest’s failure to comply with the demand, the Commissioner made an application that it be wound up.

4    At the hearing of that application before the Registrar, Starcrest appeared pursuant to a notice of appearance filed on 12 July 2024. It opposed, amongst other things, Mr Vickers’ appointment as its liquidator. In substance, its position was that Mr Vickers had a conflict of interest.

5    The evidence before the Registrar disclosed that all the procedural and substantive steps for the winding up of Starcrest had been complied with. That included notification to the Australian Securities and Investments Commission (ASIC) of the application, service on Starcrest of the same, the publication of a notice of the application having duly occurred, and the filing of the consent of Mr Vickers. The Registrar found, as does not appear to be in dispute, that the amount claimed in the statutory demand had not been paid, and that Starcrest had not filed any material which suggested that it was solvent. The requirements for the making of the winding up order were satisfied, and the order was made.

The application for review

6    Before considering the substance of the application, it is necessary to briefly dispose of an issue which arose concerning Mr Heinrich’s ability to seek a review of the Registrar’s decision on behalf of Starcrest.

Preliminary matters

7    By s 35A(5) of the Federal Court Act, only a party in the proceedings is entitled to seek a review of the Registrar’s decision. The present application was brought by Mr Heinrich in the name of Starcrest, however, by s 198G(1) of the Corporations Act 2001 (Cth) (Corporations Act), an officer of a company under external administration must not perform or exercise a function or power of that office except with the written approval of the external administrator or the Court: s 198G(3)(b).

8    As Starcrest is in liquidation, and written approval has not been obtained from Mr Vickers, Mr Heinrich is only permitted to advance the present application on behalf of Starcrest with the leave of the Court. That leave, which was formally sought at the commencement of the hearing of the review, should be granted.

9    It is apparent that there is no other entity which would seek to have the Registrar’s decision reviewed, and the only person prepared to do so is Mr Heinrich. Prima facie, he should be given that leave; the question raised by him is real and open to argument. Starcrest had initially appeared before the Registrar and opposed the appointment of Mr Vickers, and it is in the interests of justice that where that issue has been challenged, the matter be reviewed. It is also relevant that, before the Registrar, other creditors expressed that they were not entirely satisfied with the potential appointment of Mr Vickers.

10    On behalf of the Commissioner, an issue was raised as to whether or not Mr Heinrich would provide an undertaking to the Court to pay the parties’ costs of the application in the event that it was unsuccessful. Whilst he was not prepared to offer an undertaking as to costs, he was prepared to indicate that he would not oppose the making of an order for costs against him. On that basis, there is no question that leave should be granted for Mr Heinrich to exercise his power as sole director of Starcrest to bring the present application in the name of the company.

The application for winding up

11    Although Mr Heinrich does not seek to challenge the Registrar’s decision to wind up Starcrest, due to the nature of applications under s 35A(5) the application presently before the Court is one for a hearing de novo of the winding up application: see, for example, Re Bell Group NV (in liq) (No 2) (2017) 122 ACSR 418, 423 [20], citing Deputy Commissioner of Taxation v Australian Securities and Investments Commission (2014) 304 ALR 319, 325 [36].

12    The material before the Registrar in relation to whether or not Starcrest should be wound up exists as before this Court. That material has the consequence that there is no question that it should be wound up. That was not disputed. The only real question is as to the identity of the liquidator (or liquidators) to be appointed.

The appropriate liquidator to be appointed

13    At the hearing of the review, the Commissioner appeared as the applicant for the winding up. He maintained the position that Mr Vickers ought to be appointed as the liquidator. Conversely, Mr Heinrich sought the appointment of Mr David Johnstone and Mr Robert Hutson of KordaMentha.

14    Prima facie, there is a general preference in favour of appointing the liquidator proposed by the applicant for the winding up: see, for example, Re El Zorro Transport Pty Ltd [2013] NSWSC 1082 [5]: though the appointment always remains at the discretion of the Court.

15    Two of the supporting creditors, being WorkCover Queensland (WorkCover) and Big River Group Pty Ltd (Big River Group), also appeared at the hearing before this Court. They suggested that the Court should appoint a further set of liquidators, namely Mr David Hambleton and Ms Kaily Chua of Rodgers Reidy. However, they indicated that they did not oppose the appointment of Mr Vickers of PriceWaterhouseCoopers.

16    It is not in doubt that each of the individuals proposed are fully qualified by their skill, learning and ability to be appointed as liquidators of Starcrest. The only issue is which of those nominees are most appropriate to be appointed.

The potential for a conflict of interest

17    Returning then to that issue, it appears that the underlying foundation of Mr Heinrich’s concern is that there is the potential for Mr Vickers to find himself in a position of conflict of interest in the administration of Starcrest’s liquidation.

18    This is because he is the liquidator of a number of other companies, some of whom (if not many) are creditors of Starcrest. Between August and November 2022, Mr Vickers was appointed as the liquidator of the following companies:

(a)    Heinrich Formwork Pty Ltd (on 19 August 2022);

(b)    True Form Specialist Pty Ltd (on 9 September 2022);

(c)    Heinrich Formwork Gold Coast Pty Ltd (on 14 October 2022);

(d)    Marans Builtform Pty Ltd (on 14 October 2022);

(e)    Highform Solutions Pty Ltd (on 4 November 2022); and

(f)    Heiko Constructions Pty Ltd (on 4 November 2022).

19    The relationship between Starcrest and those companies (which can be referred to collectively as the “Heinrich entities”) was accurately set out in the submissions of the Commissioner and is as follows:

(a)    Starcrest and the Heinrich entities all operated in the construction industry;

(b)    the Heinrich entities provided labour hire services to Starcrest, and some, if not all, of the Heinrich entities operated at the address of Starcrest;

(c)    Starcrest was the main or sole customer of the Heinrich entities; and

(d)    Starcrest’s director, Mr Heinrich, was the sole director and company secretary of Heinrich Formwork Pty Ltd and Heinrich Formwork Gold Coast Pty Ltd.

20    From the evidence before the Court, it can be safely concluded that Starcrest and the Heinrich entities are, if not related entities, associated entities, with Mr Heinrich having at least some form of influence in relation to the operation of each of them.

21    The qualifications for the appointment of liquidators are set out in s 532 of the Corporations Act. Relevantly, a person must not, except with the leave of the Court, seek to be appointed, or act, as liquidator of a company in any of the circumstances outlined in the subsections to that provision.

22    Importantly, as the Commissioner pointed out, none of the disqualifying attributes identified in s 532 preclude a person from being appointed as a liquidator of the company if they are already a liquidator of a related entity, or even a creditor. That view was adopted (albeit in relation to a predecessor provision to s 532) in Re Chilia Properties Pty Ltd (1997) 73 FCR 171 (Chilia Properties).

23    In that case, the Court granted leave for an external controller to remain the administrator over Chilia Properties Pty Ltd, which was a subsidiary and debtor of another company in liquidation, in circumstances where the liquidator and the administrator were employees in the same firm. Relevantly, a creditor had objected to the administrator continuing to act as administrator on the basis of a perceived conflict of interest between the liquidator (as creditor) and the administrator (as debtor). That allegation was rejected. In assessing whether there was a conflict of interest, Lehane J made the following observations (at 173 – 174) which are applicable to the present case:

(a)    Section 448C of the Corporations Law (being an analogue to s 532 of the Corporations Act) quite plainly contemplates that a person who is a liquidator of a creditor of a company may nevertheless be appointed as administrator of the debtor company;

(b)    In the absence of any real, as opposed to theoretical, conflict of interest, it is generally desirable that the external administration of a group of companies be placed in the hands of one administrator. Section 448C is intended to operate in circumstances where there arises a real possibility of a conflict of interest;

(c)    Because of the obligations arising from his or her position, an administrator or liquidator is in any event bound to examine any claims advanced by creditors with care.

24    Importantly, his Honour also observed (at 173) that the fact that a liquidator is additionally an unsecured creditor, or a representative of one, merely means that the interests of the liquidator in that capacity, are the same as the interests of a substantial class of whom the liquidator is obliged to protect.

25    Siopis J added to those principles in Australian Securities and Investments Commission v Westpoint Corporation Pty Ltd (2006) 56 ACSR 646, 652 [32] – [33] (Westpoint), where his Honour relevantly said:

First, I agree that the observations made by Lehane J in Chilia, referred to above, state the principles to be applied in this case. The principles are also reflected in the following observations by Hoffmann J (as he then was) in Re Arrows Ltd [1992] BCC 121, which were cited with approval by Warren J in Sisu Capital (at 123):

… It is by no means uncommon in the case of the insolvency of a substantial group of companies for cross‑claims and conflicts of interest to arise between companies within the group. That does not usually deflect the court from appointing a single firm of insolvency practitioners in the first instance to deal with the whole insolvency of the group, leaving the question of potential conflict of interests to be dealt with if and when it arises.

I accept the arguments advanced by Mr Colvin SC and Mr Thomson that in the situation where there is no obvious and real conflict but there is a possibility of a theoretical conflict, a court should not thereby be inhibited from appointing a single set of liquidators when that would advance the efficiency of the liquidation, and result in fewer fees being charged in respect of the liquidation.

26    Ultimately, as Mr Dietz, counsel for Mr Heinrich, observed, the issue here is one of the Court’s discretion. The question is whether an alternative to Mr Vickers should be appointed because of Mr Vickers’ involvement as the liquidator of the Heinrich entities, some of whom are creditors of Starcrest. That involvement, of itself, would not preclude Mr Vickers’ appointment. However, as Mr Dietz observed, the concern went somewhat deeper. In particular, three of the companies constituted as the Heinrich entities, being True Form Specialist Pty Ltd, Heinrich Formwork Gold Coast Pty Ltd and Marans Builtform Pty Ltd, were creditors whom had commenced proceedings against Starcrest in respect of their unpaid accounts under the guide of Mr Vickers.

27    The proceedings commenced by the first two mentioned companies were in the District Court of Queensland, and the third was in the Magistrates Court of Queensland. Presumably, each claim was made in respect of charges for labour hire services. Those proceedings have been discontinued since Starcrest was placed into liquidation, though there can be no criticism of that since they were stayed, in any event, by virtue of the Corporations Act. However, Mr Dietz observed that, in respect of those proceedings, Starcrest asserted in its defence the existence of counterclaims or set-offs, the effect of which was to reduce the value of the claims against Starcrest to nil. The point sought to be advanced was that Mr Vickers, if appointed as liquidator of Starcrest, would be put in a position when evaluating the proofs of debt, to determine the veracity of not only the claim made by those three companies against Starcrest, but also the veracity of the alleged counterclaims or set-offs.

28    This does not appear to be a sufficient reason in the circumstances of this case to disqualify Mr Vickers. As was observed by Lehane J in Chilia Properties, the fact that a liquidator of one company is also a liquidator of another which claims to be a creditor of the first company creates no insurmountable problem. Ultimately, the liquidator through the creditor company is, really, in the same position as other creditors of the main company (in this case, Starcrest), in the sense that he or she has to protect the interests of all creditors when making any such assessments.

29    Therefore, in the circumstances postulated, when assessing the veracity of the claims by the Heinrich entities, and in particular the three entities which have previously commenced proceedings, Mr Vickers (or any other liquidator) will simply be in the same position when assessing those claims as he is when he assesses the claims of other creditors. The obligation to make a determination of the true amount of the debt owing is simply part of the day-to-day duties of liquidators.

30    A further proposition advanced on behalf of Mr Heinrich was in relation to the position of the Heinrich entities vis-à-vis the other creditors of Starcrest. Mr Dietz took the Court to the list of creditors which came from the report as to the affairs of the company and which revealed that there were numerous external creditors (being creditors other than related party creditors). He quite rightly identified that there are substantial amounts owing to those creditors.

31    He submitted that these circumstances revealed a further potential conflict. That is to say that, Mr Vickers, if appointed as liquidator, would be required to evaluate the proofs of debt and, on the one hand, would be evaluating the proofs of debt of the external creditors and, on the other, would be required to assess the claims of the remaining creditors, being other companies of which he is the liquidator. It is not an unreal proposition that the potential for a conflict of interest could arise in those circumstances. That is not to say that Mr Vickers would have any personal conflict, but that there may be a conflict between his duty to Starcrest and their creditors, and his duty to the creditors of the related party companies and its creditors. That possibility must necessarily give the Court pause for concern.

32    Nevertheless, in the material filed, Mr Vickers identified a proposal to deal with any such potential conflicts as they arise. He indicated that, in the event that such a problem or conflict arose, he would take steps to avoid it, in the first place, by retaining another liquidator to act as an expert in assessing proofs of debt, and secondly, if necessary, by making an application to the Court for directions under s 90-15 of the Insolvency Practice Schedule (Corporations) (being Sch 2 to the Corporations Act).

33    Both of those steps would be adequate and appropriate in the circumstances of the present case. Either would nullify the possibility that Mr Vickers might inadvertently favour the interests of one group of interested parties over another.

34    It is also a matter of some importance that Mr Vickers has already expended costs in this liquidation and the liquidations of the Heinrich entities, and has already conducted investigations into the affairs of the group of companies as a whole. He has also commenced attempts to recover assets from Mr Heinrich. There are necessarily efficiencies in a liquidator in his position, dealing with all issues which arise across the affairs of the group of companies.

35    His appointment would also give rise to a savings of costs and other general efficiencies across the multiple administrations. This view is supported by the observations of Barrett J in Willow Court Retirement Village Pty Ltd v Australian Securities and Investments Commission [2007] NSWSC 76, where his Honour appointed a common liquidator over two associated companies, notwithstanding the potential for the liquidator to find himself in a conflict situation in the course of the liquidations. His Honour observed (at [11]) that it is common practice, and generally conducive to efficiency, to appoint the same person as liquidator of several related or associated companies, unless some good reason to the contrary can be identified. After referring to Chilia Properties and Westpoint, his Honour noted (at [13]) that the liquidator will need to be alive to the potential for conflicting interests that may make it impossible, or difficult, for him or her to continue in both roles, and that it would be necessary to approach the Court if that arose.

36    Whilst that potential exists in this case, in the circumstances as they have been presented, it does not pose a sufficient limitation which would alter the discretion to appoint Mr Vickers as the liquidator of Starcrest.

37    It should be added that his appointment is not opposed by any of the creditors of Starcrest. In particular, it is supported by the Commissioner, whose debt appears to be the largest by a significant margin. It is not now opposed by WorkCover, which also has a substantial debt, nor Big River Group. Those entities are commercially minded and experienced in considering their position in relation to companies which are being wound up. It can be inferred that they have confidence that Mr Vickers will act even-handedly between themselves and the Heinrich entities and, in that respect, their confidence might be inferred to be reflective of other creditors who have not appeared.

38    In those circumstances, it is appropriate to order that Mr Vickers be appointed as the liquidator of Starcrest.

Costs

39    On the question of costs, it is noted that, in obtaining leave, Mr Dietz indicated that Mr Heinrich would not oppose an order for costs. Very appropriately, Mr Dietz did not seek to depart from that position.

40    The Commissioner and other creditors sought orders for costs, and, not inappropriately so. There are strong reasons for making such orders, given that the principal position is that costs should follow the event; the event here was the identity of the appropriate liquidator, and that went against Mr Heinrich. That is, perhaps, the most important factor in this case.

41    It was also suggested that an order which did not require Mr Heinrich to pay the costs would have the consequence that other creditors in the company would suffer as a result. It was submitted that there are few assets which might be collected for the purposes of producing funds to pay the creditors, and that those funds would be diminished if an order were made that the costs of each party be the costs in the winding up. In addition, Mr Le, the solicitor for WorkCover and Big River Group, indicated that the position taken by his clients was really provoked by Mr Heinrich himself and, had he not taken the position he did, they may not have participated in the matter. There is some force in that.

42    However, and whilst in no way suggesting that applications of this nature should be made as a matter of course, there was a real and arguable view that Mr Vickers ought not be made the liquidator of Starcrest. The application was brought in good faith, and no one could suggest to the contrary. It was clearly articulated and reasonable arguments were advanced.

43    It may be that, had the circumstances been slightly different, the full extent of the debate about the relevant appointment could have been ventilated before the Registrar, and indeed, to some extent, it may have been. Nevertheless, in this case, given the weight of the arguments advanced on behalf of Mr Heinrich, the fact that there still remains the possibility that conflicts will arise, and that the application was not only reasonably made but properly supported by argument, the appropriate order is that the costs of the Commissioner, the supporting creditors, being WorkCover and Big River Group, and the liquidator, be costs in the winding up. Otherwise, there be no other order as to costs.

Associate:    

Dated:    29 October 2024

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