FEDERAL COURT OF AUSTRALIA CORPORATIONS - appointment of provisional liquidator - circumstances in which appointment should be made - leave to receiver to be appointed as provisional liquidator Corporations Law s 532(2) 13 COROMANDEL PTY LTD v CL CUSTODIANS AND AUSTRALIAN PROPERTY CUSTODIANS PTY LTD VG 3102 of 1998 FINKELSTEIN J MELBOURNE 9 APRIL 1998 NOT FOR GENERAL DISTRIBUTION IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY _ VG 3102 of 1998 BETWEEN: 13 COROMANDEL PTY LTD Applicant AND: CL CUSTODIANS AND AUSTRALIAN PROPERTY CUSTODIANS PTY LTD Respondents JUDGE: FINKELSTEIN J DATE OF ORDER: 9 APRIL 1998 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: Leave be granted pursuant to s 532(2) of the Corporations Law for Mark Anthony Korda to be appointed as the provisional liquidator of CL Custodians Pty Ltd pending the determination of the application or further order. The provisional liquidator take possession as soon as possible of all the property, assets and undertaking of CL Custodians Pty Ltd of which possession may lawfully be taken. The liquidator have all the powers that a liquidator of CL Custodians Pty Ltd would have under s 477(2) (except ss 477(2)(c) and (m) and 477(3)) of the Corporations Law if CL Custodians Pty Ltd were being wound up in insolvency or by the court. The provisional liquidator's costs be taxed and paid out of the assets of CL Custodians Pty Ltd pursuant to the IPAA Melbourne scale. The applicant's costs of and.incidental to the applicant's notice of motion filed 9 April 1998 be costs in the winding up. Pursuant to s 50 of the Federal Court of Australia Act 1976 (Cth) Exhibit "SJS-1" to the affidavit of Sally Joan Sheppard sworn on 9 April 1998 be kept confidential and subject to further order not to be disclosed to anyone other than Victorian Lawyers RPA Limited, and then only on terms that Victorian Lawyers RPA Limited, its employees and agents keep the contents of that exhibit confidential. That until the hearing and determination of this proceeding or further order Australian Property Custodians Pty Ltd its directors, officers, employees or agents or otherwise howsoever, be restrained from: -2- (i) selling, disposing of , encumbering or otherwise dealing with any of the moneys paid by the applicant into the trust account of Messrs Aroni Colman on 5 December 1997 in the sum of $1, 190,000 and any assets into which those moneys may have been converted or upon the acquisition of which those moneys may have been outlaid; (ii) giving instructions whether directly or indirectly to any person in Australia or elsewhere in whose possession the moneys or assets referred to in (i) hereof presently are, in relation to the disposal of or dealing with those moneys or any part of them. 8. Pursuant to s 50 of the Federal Court of Australia Act 1976 (Cth) and subject to further order the affidavit of Barry David Bloom filed 9 April 1998 and the exhibits thereto be kept confidential and not to be disclosed to any person except that counsel for the secondnamed respondent may inspect the affidavit and the exhibits and not make any copies of the affidavit or exhibits. 9. The secondnamed respondent file and serve its defence on or before 4.00pm on 23 April 1998 10. The applicant and the secondnamed respondent each file and serve a verified list of discoverable documents on or before 4.00pm on 7 May 1998. 11. Costs of all parties of this day be reserved. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules IN THE F EDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VG 3102 of 1998 BETWEEN: 13 COROMANDEL PTY LTD : Applicant AND: CL CUSTODIANS AND AUSTRALIAN PROPERTY CUSTODIANS PTY LTD Respondents JUDGE: FINKELSTEIN J DATE: . 9 APRIL 1998 WHERE MADE: MELBOURNE REASONS FOR JUDGMENT HIS HONOUR: Presently there are two applications before the Court. 13 Coromandel Pty Ltd (13 Coromandel) is the applicant in each of them. In the first application 13 Coromandel seeks the appointment of a provisional liquidator to CL Custodians Pty Ltd (CL Custodians). The proposed provisional liquidator is Mark Anthony Korda. In the second application 13 Coromandel seeks the continuation of ex parte injunctions that I granted on 2 April 1998 against Australian Property Custodians Pty Ltd (Property Custodians) pending the hearing and determination of an action against that company. The action was commenced on 7 April 1998. In that action, where CL Custodians is also a respondent, 13 Coromandel claims against Property Custodians damages for misleading and deceptive conduct which it contends led it to make an investment of $1,190,000 in a joint venture that was to be established by CL Custodians. The nature of the claim can be briefly stated. It is alleged that in January 1998 CL Custodians advised 13 Coromandel that it was putting in place a joint venture that would lease certain plant and equipment to the Transfield Consortium. It is alleged that CL -2- Custodians informed 13 Coromandel that Transfield wished to lease certain plant and equipment to a total value of $5 million from the joint venture that CL Custodians would, as trustee and agent of the joint venture parties, acquire the plant and equipment with money advanced by the joint venturers together with other money to be borrowed by the joint venturers and that it would lease that plant and equipment to Transfield for a 5 year term. It was anticipated that these arrangements would confer significant tax advantages on the joint venture participants. It is also alleged that Property Custodians participated in the making of the representations. Finally it is alleged that in reliance on the representations 13 Coromandel paid over to CL Custodians the amount of $1,190,000 as its contribution to the joint venture to be applied towards the purchase of plant and equipment that would be leased to the Transfield consortium. It now appears, prima facie at least, that the proposal put to 13 Coromandel was a sham. CL Custodians had no intention of utilising the funds provided by any of the joint venture participants (there were many others apart from 13 Coromandel ) towards the purchase of any plant and equipment nor did it have any intention of leasing that plant and equipment to Transfield. The evidence suggests that Transfield knew nothing whatsoever about the proposal. Most of the money invested by the joint venturers has now disappeared. I say most of it because there is some money that has found its way into bank accounts in Australia. The balance seems to have gone to certain overseas accounts and may or may not be recoverable. 13 Coromandel has made application to wind up CL Custodians in insolvency. It is in that application that 13 Coromandel seeks the appointment of a provisional liquidator. The evidence that has been filed in support of the application makes out a prima facie case that CL Custodians is insolvent. It appears to have liabilities of many millions of dollars, perhaps of the order of $38 million or more, and those assets of the company that can presently be identified will not be sufficient to discharge its liabilities. 13 Coromandel seeks the appointment of a provisional liquidator for the principal purpose of -3- getting in the assets of the company. Ifa provisional liquidator is appointed he can take steps to locate the whereabouts of the millions of dollars of investors' money that seem to have been misappropriated. It is clearly appropriate that a provisional liquidator be appointed for that purpose. It is imperative that efforts to locate the funds be undertaken with the utmost speed. On 2 April 1998 I appointed Mr Korda as one of two receivers of CL Custodians for the purpose of securing the assets of the company. As a consequence of his appointment as one of the two receivers Mr Korda will be a creditor of the company for the costs and expenses of the receivership. By section 532(2) of the Corporations Law it is provided that a person shall not be appointed as a liquidator or provisional liquidator of a company if that person is a creditor of the company in an amount exceeding $5,000. Although it is not clear whether Mr Korda will be owed an amount exceeding $5,000 it is likely that he will be. Accordingly, he cannot act as liquidator unless he is given leave to do so under s 532(2). I have already said that it is clear that a provisional liquidator should be appointed to CL Custodians. Further, I am of the opinion that it is in the interests of all parties that Mr Korda be appointed the provisional liquidator. He, together with the other joint receiver, has already undertaken some investigation into the affairs of the company and has commenced enquiries to locate the whereabouts of the misappropriated funds. Some of that work would be wasted if a person other than Mr Korda is appointed provisional liquidator and that would be to the disadvantage of all of the creditors of the company. In the circumstances Mr Korda should be given leave to act as the provisional liquidator of CL Custodians. So far as the second application is concerned, that is the application for the continuance of the ex parte injunctions granted by me on 2 April 1998 J note that Property Custodians appeared by Counsel and did not make any submission why the injunctions should not be continued. By those injunctions Property Custodians will be restrained from disposing of the sum of $1,190,000 paid by 13 Coromandel or from disposing of any assets into which that money has been converted. It seems to me to be clear that if the amount "invested" by 13 -4- Coromandel can be traced that money or the assets into which that money has been converted is held on trust for 13 Coromandel and it is entitled to an order that the property to which it claims title be preserved pending the hearing of the claim. Accordingly, I will make the orders sought. I certify that this and the preceding three (3) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein Associate: Dated: 28 April 1998 Counsel for the Applicant: G Nettle QC P Santamaria Solicitor for the Applicant: Clayton Utz Counsel for the Second WT Houghton Respondent: M Connock Solicitor for the Second Baker & McKenzie Respondent: Counsel for the Victorian JWK Burnside QC Lawyers RPA MT Settle Solicitor for the Victorian Corrs Chambers Westgarth Lawyers RPA Counsel for William Lewski L Glick Solicitor for William Lewski Strongman & Crouch Date of Hearing: 9 April 1998 Date of Judgment: 9 April 1998