HCB Marine Pty Ltd (in liq) v Harris [1998] FCA 167

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY NG 3586 of 1996

BETWEEN: HCB MARINE PTY LIMITED (in liquidation)

First Applicant

IAN CAMPBELL

Second Applicant

AND: STANLEY SIDNEY HARRIS

First Respondent

ERIKA HARRIS

Second Respondent

SS & E HARRIS PTY LIMITED

Third Respondent

JUDGE(S): HILL J

DATE: 9 FEBRUARY 1998

PLACE: SYDNEY

EX TEMPORE REASONS FOR JUDGMENT Before the Court is an application by HCB Marine Pty Limited (in liquidation) and its liquidator for orders that the first and second respondents (referred to as the first and second defendants in the Application and Statement of Claim) pay to the first applicant pursuant to section 588M of the Corporation Law the sum of $474,496.38 and additionally that they pay to the second applicant on behalf of the first applicant pursuant to section 588FF(1)(a) of the Corporations Law the amount of $7,688 and also an order that the first and second respondents pay to the second applicant on behalf of the first applicant an amount of $11,400. There is also an application for an order under section 588FF of the Corporations Law. The application was defended. It is unnecessary to deal in any detail with the basis of the defence. It suffices to say that the major issue is that the second respondent, Mrs Harris, asserts she was unaware of any information about the affairs of the applicant and that the first respondent says that he relied upon external advice and was unaware of the insolvency of the first applicant. The matter was listed for hearing before me this morning. Four days had been set aside for that hearing. The possibility of a settlement was discussed around 30 January 1998 with a committee of inspection when approval was obtained to settle the amount for, in essence, an actual figure of $75,000. The compromise which has apparently now been reached between the parties while providing for judgment to be entered in the amount of $100,000 contains an agreement in effect to accept $65,000 provided payments are made within certain dates. The liquidator has filed an affidavit of an accountant containing material provided by Mr Harris to the liquidator of assets, liabilities and income of his wife, himself and SS & E Harris Pty Limited, a company which Mr and Mrs Harris own. The accountant has advised the liquidator and the court that if judgments in a greater amount than I have already indicated as part of the compromise were to be obtained by the liquidator, the first and second respondents would be unable to comply, being not only without assets but also, without the ability to borrow. Likewise, the third respondent, SS & E Harris Pty Limited would go into liquidation and terminate any ability it had to service any borrowings and increase liabilities. The accountant says that in her discussions with the liquidator and from her own investigations she considers that the proposal for settlement by the respondents will maximise the returns available to creditors, minimise the costs of recovery and result in a more speedy distribution to creditors. No direct affidavit evidence has been filed by the liquidator but I am advised by counsel for the liquidator that the liquidator does support the statement, indirectly, of his opinion contained in the accountant's affidavit. I have had the opportunity of reading in detail the affidavits filed in the proceedings together with annexures largely including the statement of examination conducted by counsel for the liquidator. In essence, as I have already noted, the case for Mrs Harris was that she was unaware of information about the affairs of the company and that of Mr Harris, in essence, that he relied upon professional advisers. There are areas of conflict and it perhaps suffices to say that litigation is always uncertain and although one could see some case for the liquidator both against Mrs Harris, whose evidence seems somewhat to conflict with Mr Harris, and against Mr Harris in relation to what may have been told to him by the professional advisers, there are other matters which no doubt would lead one to the conclusion that there was some uncertainty as to the ultimate prospects of the liquidator being successful. The case is perhaps an unusual one in that it was not really suggested that the respondents had taken assets of the company for their own benefit but rather that they too had lost assets in the course of the winding up of the applicant. Counsel for the liquidator has referred me to the decision of Gyles J in Re Spedley Securities Ltd (in liquidation) (1992) 9 ACSR 83 in which his Honour set out the principles applicable to a compromise approved by the Court under the provisions of the then section 377 of the Companies (NSW) Code in virtually identical form to that of section 477 of the Corporation Law. In that judgment, his Honour pointed out that the section was concerned with producing an efficient winding up for the benefit of creditors; that the liquidator's commercial judgment is of relevance; and that the court looks to the interests of creditors and considers whether it is in their interests, having regard to the course of the winding up. Of course a compromise could be approved notwithstanding that all creditors had not assented, although generally speaking at least the court would look to see whether a majority of the creditors had agreed to the proceedings before confirming a compromise. The present case is unusual for not only have the creditors themselves not considered the terms of the compromise but also the committee of inspection has considered, at least in theoretical form, a compromise and approved one which is inconsistent with the compromise now put before the court. That does not of course mean that the committee of inspection would necessarily disapprove of the compromise before the court. It merely produces a situation that it has not had the opportunity of considering the compromise having regard to the speed with which the negotiations have taken place. If the committee of inspection representing creditors favoured the compromise then I would have no difficulty in approving it for it seems to me that it is in the best interests of the liquidation and that it is not in the best interests of the liquidator that the matter proceed for a four day hearing only to find there are no assets available for distribution at the end of the time with the result that there would be outstanding costs that not only would not be collected but also it may well be that the amount collected would not approach the figure that has been agreed upon. In the circumstances it seems to me that the appropriate course to take is to make the orders in the form submitted in the short minutes of order by consent, signed by counsel, initialled by me and dated but to stay those orders for a period of seven days to allow the committee of inspection to meet, and hopefully approve, the compromise. In the event that the compromise was not approved for the liquidator by the committee of creditors then no doubt the appropriate course would be for the liquidator to approach the Court for further directions. Accordingly I make the following orders: 1. Verdict and judgment for the plaintiff in the sum of $100,000 inclusive of interest and costs. 2. Each party pay their own costs. I stay each of those orders for a period of seven days with liberty to restore to the list on 24 hours notice. In addition, the Court notes an agreement between the parties that should the respondents pay the sum of $65,000 to the applicants, payable as follows: (a) as to an amount of $35,000 to the offices of the liquidator within 28 days of the date of these orders: and (b) as to an amount of $30,000 to the offices of the liquidator within six calendar months from the date of these orders the applicants agree to accept this sum in full satisfaction of the judgment in paragraph 1.