Lord v Trimgood Pty Limited, in the matter of Parle Foods Pty Limited (in Liquidation) [2008] FCA 1167

FEDERAL COURT OF AUSTRALIA

Lord v Trimgood Pty Limited, in the matter of Parle Foods Pty Limited (in Liquidation) [2008] FCA 1167

IN THE MATTER OF PARLE FOODS PTY LIMITED (IN LIQUIDATION), JOHN FREDERICK LORD v TRIMGOOD PTY LIMITED

VID 3044 OF 2003

EMMETT J

25 JULY 2008

SYDNEY IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY VID 3044 OF 2003

IN THE MATTER OF PARLE FOODS PTY LTD (IN LIQUIDATION), BETWEEN: JOHN FREDERICK LORD

Applicant

AND: TRIMGOOD PTY LIMITED

Respondent

JOEL SIMFORD WELDING SERVICES PTY LTD

Plaintiff

PARLE FOODS PTY LTD (IN LIQUIDATION)

Defendant

JUDGE: EMMETT J

DATE OF ORDER: 25 JULY 2008

WHERE MADE: SYDNEY

THE COURT ORDERS THAT:

1. Pursuant to s 479(3) of the Corporations Act 2001 (Cth), the liquidator is not bound to follow the direction given to him by creditors by resolution 2 of the meeting of creditors of the company of 17 April 2008. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY VID 3044 OF 2003

IN THE MATTER OF PARLE FOODS PTY LTD (IN LIQUIDATION), BETWEEN: JOHN FREDERICK LORD

Applicant

AND: TRIMGOOD PTY LIMITED

Respondent

JOEL SIMFORD WELDING SERVICES PTY LTD

Plaintiff

PARLE FOODS PTY LTD (IN LIQUIDATION)

Defendant

JUDGE: EMMETT J

DATE: 25 JULY 2008

PLACE: SYDNEY

REASONS FOR JUDGMENT 1 On 8 May 2003 the Court ordered that Parle Foods Pty Limited (the Company) be wound up. Mr John Lord (the Liquidator) was appointed liquidator of the Company. 2 On 6 March 2006, the Liquidator commenced a proceeding in the New South Wales registry of the Court seeking recovery of alleged unfair preference payments made by the Company to various creditors (the Preference Proceeding). The Liquidator has filed an affidavit in the Preference Proceeding adducing evidence as to the insolvency of the Company at relevant times. No other affidavits have been filed and no other interlocutory steps have been completed. 3 The Liquidator has settled the Preference Proceeding as against a number of defendants. Some settlements involved the payment of money by creditors, while other settlements involved discontinuing as against the relevant defendants with no orders as to costs. 4 On or about 5 March 2008, one of the defendants in the Preference Proceeding, Trimgood Pty Limited (Trimgood), made an offer to compromise the Preference Proceeding as against Trimgood and other defendants. The terms of the proposed compromise involve release of: · the claims by the Liquidator against Trimgood in the Preference Proceeding; · all claims available to the Company or the Liquidator against certain former directors and officers of the Company for allowing the Company to incur debts at a time when it was insolvent; · all claims against the remaining defendants in the Preference Proceeding. 5 The Liquidator convened a meeting of creditors in order to seek a direction as to whether the offer of compromise made by Trimgood should be accepted. At a meeting of creditors held on 17 April 2008, the creditors resolved to direct the Liquidator to accept the offer of compromise made by Trimgood. No poll was taken and only one vote was cast against the resolution. 6 By interlocutory process filed on 21 May 2008, the Liquidator sought the following relief: · an order that the Liquidator is justified in not following the direction given to him by creditors at the meeting held on 17 April 2008; · an order that the hearing of the application take place in the absence of the public; and · an order that access to affidavits filed in the interlocutory process and any transcript be restricted to the Liquidator. However, on 11 July 2008, the Liquidator filed an amended interlocutory process in which the relief claimed is limited to an order that the Liquidator is not bound to follow the direction given to him by the creditors at the meeting of 17 April 2008; 7 When the interlocutory process in its original form first came before me, it was clear that the Liquidator did not wish to press for the relief then claimed. He accepted, in substance, that the question of whether or not to accept the compromise offer made by Trimgood is a matter for commercial judgment by him as liquidator of the Company. The Liquidator's solicitor indicated to the Court that he would not press for the relief originally sought but would limit the application to an order that he was not bound to follow the direction given by the creditors. Accordingly, I granted leave for an amended interlocutory process to be filed. I also indicated that I considered that it would be desirable for Trimgood to be joined as a party to the interlocutory process, if that is the only relief that was being sought. 8 Subsequently, counsel for Trimgood and most other remaining defendants appeared and provided submissions by way of assistance to the Court. Trimgood's submissions were originally directed to opposing the proposition that the Court should make an order that the Liquidator was justified in not following the directions of the creditors. However, Trimgood and the other defendants do not dispute the proposition that a liquidator is not bound to follow a direction given by creditors. 9 Section 479(1) of the Corporations Act 2001 (Cth) provides that the liquidator of a company must, in the administration of the property of the company, and in the distribution of the company's property amongst its creditors, have regard to any directions given by resolution of the creditors. Section 479(2) provides that the liquidator may convene meetings of the creditors for the purpose of ascertaining their wishes. 10 When s 479(1) requires a liquidator to have regard to any directions given by resolution of the creditors, it imposes an obligation on the liquidator. The creditors, acting honestly, are likely to be good judges of what is to their commercial advantage. If the creditors perceive that a particular course is to their commercial advantage, a liquidator must have regard to the views of the creditors in the sense that the liquidator must take those views into account in making a particular decision. However, the liquidator is not bound to abide by a direction given by the creditors. 11 In deciding whether or not to continue to prosecute the Preference Proceeding, the Liquidator must make a judgment as to whether the unsecured creditors will be better served by prosecuting the Preference Proceeding and, thereby incurring significant costs. He must weigh in the balance the prospects of success and the consequences of success against the consequences of failing and the liability for costs that would thereby be incurred. 12 Under s 479(3), a liquidator may apply to the Court for directions in relation to any particular matter arising under the winding up. However, the Court will be slow to pronounce upon the commercial prudence of a transaction proposed by a liquidator. In other words, a liquidator cannot seek the assistance of the Court to make a decision that property falls within the discretion of the liquidator. In particular, the Court will not entertain an application for the Court to exercise the discretion properly to be exercised by a liquidator and to pronounce on the commercial prudence, viability or wisdom of either instituting or compromising a particular proceeding. 13 If the Court gives a direction to a liquidator who has made full and fair disclosure to the Court of the material facts, the liquidator may act in accordance with the direction without thereby incurring personal liability to any of the unsecured creditors. However, a liquidator cannot seek the assistance of the Court to make a decision that properly falls within the discretion of the liquidator. The Court should not exercise the discretion properly to be exercised by the Liquidator on the commercial prudence, viability and wisdom of continuing to prosecute the Preference Proceeding. 14 In the circumstances, I consider that it is appropriate to give a direction to the Liquidator that he is not bound to follow the direction given to him by the resolution of creditors of 17 April 2008. However, the giving of such a direction should not be taken to be an endorsement in any way of the prudence or wisdom of any decision made by him to continue to prosecute the Preference Proceeding. I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.