FEDERAL COURT OF AUSTRALIA Beautree Pty Limited, in the matter of Willow Glade Pty Limited v Willow Glade Pty Limited [2009] FCA 738 CORPORATIONS – liquidation – appointment of liquidators provisionally under s 472(2) of Corporations Act 2001 (Cth) – application for winding up on "just and equitable" ground – breakdown in relations between the two directors of company – Supreme Court proceeding against company on foot – motion for summary judgment to be before Supreme Court in two days' time – because of deadlock within company, impossible for company to defend Supreme Court proceeding or take any other step in it – company in breach of asset disclosure order made in Supreme Court proceeding – whether prejudicial to a proceeding for contempt of Supreme Court's order for provisional liquidator to be appointed – discretionary considerations – possible insolvency of companies in group. Held: Provisional liquidators appointed. Corporations Act 2001 (Cth) s 472(2) IN THE MATTER OF WILLOW GLADE PTY LIMITED (ACN 095 616 283) BEAUTREE PTY LIMITED (ACN 003 129 119) v WILLOW GLADE PTY LIMITED (ACN 095 616 283) NSD 673 of 2009 IN THE MATTER OF PAZOLUCA PTY LIMITED (ACN 108 748 296) BEAUTREE PTY LIMITED (ACN 003 129 119) v PAZOLUCA PTY LIMITED (ACN 108 748 296) NSD 674 of 2009 LINDGREN J 9 JULY 2009 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 673 of 2009 general division IN THE MATTER OF WILLOW GLADE PTY LIMITED (ACN 095 616 283) BETWEEN: BEAUTREE PTY LIMITED (ACN 003 129 119) Plaintiff AND: WILLOW GLADE PTY LIMITED (ACN 095 616 283) Defendant JUDGE: LINDGREN J DATE OF ORDER: 7 JULY 2009 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Specialty Fashion Group Pty Ltd be granted leave to be heard. 2. Leave be granted to Specialty Fashion Group Pty Ltd to make use of the affidavit of Richard Davies Bamford sworn 6 July 2009 in proceeding 2765 of 2009 in the Equity Division of the Supreme Court of New South Wales. 3. The proceeding be stood over part-heard to Wednesday 8 July 2009 at 9.30 am. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using eSearch on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 674 of 2009 general division IN THE MATTER OF PAZOLUCA PTY LIMITED (ACN 108 748 296) BETWEEN: BEAUTREE PTY LIMITED (ACN 003 129 119) Plaintiff AND: PAZOLUCA PTY LIMITED (ACN 108 748 296) Defendant JUDGE: LINDGREN J DATE OF ORDER: 7 JULY 2009 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Specialty Fashion Group Pty Ltd be granted leave to be heard. 2. Leave be granted to Specialty Fashion Group Pty Ltd to make use of the affidavit of Richard Davies Bamford sworn 6 July 2009 in proceeding 2765 of 2009 in the Equity Division of the Supreme Court of New South Wales. 3. The proceeding be stood over part-heard to Wednesday 8 July 2009 at 9.30 am. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using eSearch on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 673 of 2009 general division IN THE MATTER OF WILLOW GLADE PTY LIMITED (ACN 095 616 283) BETWEEN: BEAUTREE PTY LIMITED (ACN 003 129 119) Plaintiff AND: WILLOW GLADE PTY LIMITED (ACN 095 616 283) Defendant JUDGE: LINDGREN J DATE OF ORDER: 8 JULY 2009 WHERE MADE: SYDNEY UPON THE PLAINTIFF THROUGH ITS COUNSEL GIVING TO THE COURT THE USUAL UNDERTAKING AS TO DAMAGES, THE COURT ORDERS THAT: 1. Michael John Morris Smith and Peter Hillig, official liquidators, of Smith Hancock Chartered Accountants be appointed as joint liquidators of the defendant provisionally. 2. The provisional liquidators take such steps as are reasonably necessary to ensure compliance, albeit now out of time, with order 5 made by the Supreme Court of NSW on 15 May 2009 in proceeding 2765 of 2009 in the Equity Division of that Court. 3. The costs of the application for the appointment of liquidators provisionally be the plaintiff's costs of the proceeding generally. 4. The proceeding be stood over to 24 July 2009 at 9.30 am before the Registrar. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using eSearch on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 674 of 2009 general division IN THE MATTER OF PAZOLUCA PTY LIMITED (ACN 108 748 296) BETWEEN: BEAUTREE PTY LIMITED (ACN 003 129 119) Plaintiff AND: PAZOLUCA PTY LIMITED (ACN 108 748 296) Defendant JUDGE: LINDGREN J DATE OF ORDER: 8 JULY 2009 WHERE MADE: SYDNEY UPON THE PLAINTIFF THROUGH ITS COUNSEL GIVING TO THE COURT THE USUAL UNDERTAKING AS TO DAMAGES, THE COURT ORDERS THAT: 1. Michael John Morris Smith and Peter Hillig, official liquidators, of Smith Hancock Chartered Accountants be appointed as joint liquidators of the defendant provisionally. 2. The provisional liquidators take such steps as are reasonably necessary to ensure compliance, albeit now out of time, with order 5 made by the Supreme Court of NSW on 15 May 2009 in proceeding 2765 of 2009 in the Equity Division of that Court. 3. The costs of the application for the appointment of liquidators provisionally be the plaintiff's costs of the proceeding generally. 4. The proceeding be stood over to 24 July 2009 at 9.30 am before the Registrar Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using eSearch on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 673 of 2009 GENERAL DIVISION IN THE MATTER OF WILLOW GLADE PTY LIMITED (ACN 095 616 283) BETWEEN: BEAUTREE PTY LIMITED (ACN 003 129 119) Plaintiff AND: WILLOW GLADE PTY LIMITED (ACN 095 616 283) Defendant IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 674 of 2009 general division IN THE MATTER OF PAZOLUCA PTY LIMITED (ACN 108 748 296) BETWEEN: BEAUTREE PTY LIMITED (ACN 003 129 119) Plaintiff AND: PAZOLUCA PTY LIMITED (ACN 108 748 296) Defendant JUDGE: LINDGREN J DATE: 9 JULY 2009 PLACE: SYDNEY REASONS FOR JUDGMENT INTRODUCTION 1 In each of these proceedings, the plaintiff, Beautree Pty Limited (Beautree), seeks an order that the defendant, Willow Glade Pty Limited (Willow Glade) in the one case and Pazoluca Pty Limited (Pazoluca) in the other, be wound up. These reasons for judgment relate to an interlocutory application made by Beautree in each proceeding for the appointment of liquidators provisionally under s 472(2) of the Corporations Act 2001 (Cth) (the Act). 2 I made that order on 8 July 2009 for the reasons that appear below. On the preceding day I made orders which, like those of 8 July, appear at the front of these reasons and to which these reasons also relate. 3 Beautree holds 50% of the issued shares in each of Willow Glade and Pazoluca, the other 50% being held by Feldcorp Pty Limited (Feldcorp). The directors of each company are Richard Davies Bamford and Simon Ari Feldman. Mr Bamford is the sole director of Beautree and is its sole shareholder. Mr Feldman is the sole director of Feldcorp and he and his wife Camilla Feldman are its only shareholders. 4 There has been a breakdown in relations between Mr Bamford and Mr Feldman and, through them, between Beautree and Feldcorp. In the result there is a deadlock within both Willow Glade and Pazoluca. In each case the ground on which Beautree, a contributory (see s 462(2)(c) of the Act), seeks a winding up is that it is "just and equitable that the company be wound up": see s 461(1)(k) of the Act. 5 On 6 July 2009 I ordered that the proceedings be heard together and that the evidence in each be evidence in the other, subject to all just exceptions on grounds of admissibility. On 7 July 2009 I granted leave to Speciality Fashion Group Limited (SFG) to be heard. The role of SFG will appear below. 6 Michael John Morris Smith and Peter Hillig, official liquidators, of Smith Hancock Chartered Accountants have signed in each case a consent to act as liquidators provisionally. 7 Feldcorp, through Mr Feldman, was served with copies of the originating process and interlocutory process and the supporting affidavits. I am satisfied that Mr Feldman was aware that the interlocutory application had been made in each proceeding and was being heard by the Court. Neither Feldcorp nor Mr Feldman sought to be heard. FACTS 8 The present proceedings are to be understood against the background of proceeding 2765 of 2009 in the Equity Division of the Supreme Court of New South Wales (the Supreme Court proceeding). The plaintiff in the Supreme Court proceeding is SFG. 9 There are 19 defendants in the Supreme Court proceeding. I need not identify all of them. The first defendant is Muirhead Nominees Pty Ltd (Muirhead) of which Mr Marks, a relative of Mr Feldman, is the sole director. The shares in Muirhead are held by Mr Marks and there is evidence that he holds them in trust for Pazoluca. 10 The second to seventh defendants are as follows: Second: Mr Feldman Third: Beautree Fourth: Mr Bamford Fifth: Willow Glade Sixth: Pazoluca Seventh: Feldcorp 11 The ninth defendant is Patricia Yonon who is also known as Patricia Bamford and is the wife of Mr Bamford. The eleventh defendant is Mr Marks. The eighteenth defendant is Camilla Feldman, the wife of Mr Feldman. The following companies are also defendants: Twelfth: Revived Rubber Technologies Pty Ltd (Revived Rubber) Fifteenth: Renaza Resources Pty Ltd (Renaza) Nineteenth: Secure Archives Pty Ltd (Secure Archives) 12 SFG is a public company which owns numerous retail clothing stores. At material times, Mr Feldman was a senior employee of SFG. SFG claims in the Supreme Court proceeding that over the last few years Mr Feldman has misappropriated approximately $16 million of the funds of SFG. According to the allegation his modus operandi was to create "false invoices" from various companies with which he was associated addressed to SFG, as a result of which SFG paid the amounts of the invoices to those companies. Of course, the invoices were real enough, but the allegation is that the goods or services or other consideration referred to in them had not been supplied to SFG. The companies that issued the invoices and others that benefited from the payments are defendants in the Supreme Court proceeding. They include the companies mentioned in these reasons for judgment. 13 On 12 May 2009 the Supreme Court made freezing orders which, on 15 May 2009, were continued until further order. 14 Other orders made by the Supreme Court required, relevantly, Mr Feldman, Ms Feldman, Beautree, Willow Glade, Pazoluca, Feldcorp, Mr Bamford and Ms Yonon to swear and serve affidavits by certain dates. Relevantly, Willow Glade and Pazoluca were required to do so by 29 May 2009, but have not complied with this order. 15 I was most anxious to ensure that these proceedings have not been brought in order to obtain a result that would in any way impinge upon any contempt of court proceeding that might be brought in respect of Willow Glade's and Pazoluca's non-compliance with the order of the Supreme Court. I explored this question with counsel who appeared for Beautree and senior counsel who appeared for SFG. I was satisfied that the proceedings were not brought for any untoward purpose and that orders for the appointment of liquidators provisionally would not prejudice the imposition of any sanction for contempt of court. Senior counsel for SFG informed the Court that SFG hopes that the appointment of provisional liquidators may facilitate the provision of the affidavits and therefore compliance, albeit out of time, with the Supreme Court's order. The matter of giving leave for SFG to proceed with the Supreme Court proceeding against Willow Glade and Pazoluca (see s 471B of the Act) will be able to be dealt with by that Court. 16 It is necessary to say something further about the dramatis personae. Beautree and Feldcorp own in equal shares the issued share capital in Revived Rubber and Mr Bamford and Mr Feldman are the directors of that company. It is a trading company that operates a tyre recycling plant out of premises at Fairfield which it leases from Willow Glade. It leases manufacturing equipment from Motive Finance and Equipment Leasing Pty Ltd (Motive) which on 2 June 2009 gave notices of default and of termination of contract to Revived Rubber through its directors, Messrs Feldman and Bamford. 17 Willow Glade owns premises at Fairfield and at Alexandria. As noted earlier, the shares in Willow Glade are held equally by Feldcorp and Beautree but the shares that Beautree holds, it holds as trustee for the Bamford Family Trust. A similar observation applies in relation to the equal ownership of the share capital of Pazoluca by Feldcorp and Beautree. 18 On 2 June 2009 Motive also gave a notice of default and termination in respect of leased equipment to Willow Glade. As well, a notice of default under s 57 of the Real Property Act 1900 (NSW) was served on 25 May 2009 to Willow Glade as mortgagor of the Alexandria property. 19 Pazoluca has three subsidiaries. The first subsidiary is Secure Archives, whose sole director is Ms Yonon (also known as Ms Bamford). Secure Archives is a trading company that provides document storage services in premises at Fairfield that it leases from Willow Glade. Its clients include planning firms and law firms. Some three weeks ago, Mr Bamford terminated the services of all three of its employees. On 2 June 2009 Motive gave a notice of default and termination to Secure Archives in respect of leased equipment. 20 The second subsidiary is Renaza whose directors are Mr Feldman and Mr Bamford. Renaza is a trading company which leases premises at Alexandria from Willow Glade. It uses recycled tyre crumb and granulated rubber generated from the operations of Revived Rubber to manufacture various products. On 2 June 2009 Motive gave Renaza notices of default and termination in respect of equipment that it leased. 21 Muirhead, to which I referred earlier, is not a trading company and does not employ anyone. It is a wholly owned subsidiary of Pazoluca only in the special sense that all the shares in it are held by Mr Marks as trustee for Pazoluca. CONSIDERATION 22 The principles governing the appointment of a provisional liquidator are, I think, well settled. First, it must appear likely that on the final hearing the company will be ordered to be wound up. Second, there must be circumstances of urgency, such as a threat of dissipation of assets, that require the appointment of a liquidator provisionally. 23 The affidavit evidence of Mr Bamford shows relevantly that over a period from 13 May 2009 to 23 June 2009 he has been in discussions with Mr Feldman regarding the appropriate course of action to take in response to the Supreme Court proceeding. These discussions have included unsuccessful attempts by Mr Bamford to convince Mr Feldman to agree to put the four operating companies, Revived Rubber, Willow Glade, Renaza and Secure Archives into liquidation. On 28 May 2009 Mr Feldman sent Mr Bamford an email stating that he was reluctant to place any business into liquidation. Mr Bamford has made several approaches to Mr Feldman to come up with a concrete proposal but none has been forthcoming. Mr Bamford has expressed to Mr Feldman his (Mr Bamford's) concern about the companies trading while insolvent. Mr Feldman has at times expressed to Mr Bamford a desire to move with his family away from Sydney to live in order to mitigate the ramifications of his problems for his family. 24 Mr Feldman has also told Mr Bamford that he (Mr Feldman) wants to "do a deal", apparently in order to bring the Supreme Court proceeding to an end. Nothing has come of this. Mr Feldman's central concern appears to have been to cooperate with SFG, or at least to seem to be doing so. 25 In more recent times, Mr Feldman has not been responding, or not responding constructively, to messages left for him by Mr Bamford. Mr Bamford states in his affidavit that he feels he is unable to have any effective communication with Mr Feldman in relation to the companies of which they are the directors. In particular, he states that he cannot obtain Mr Feldman's agreement to taking the action that a board of directors should normally take in circumstances such as those presently existing. 26 SFG asked for an order that it be at liberty to use Mr Bamford's affidavit in the Supreme Court proceeding and I made an order to that effect on 7 July 2009. 27 I am satisfied that it is likely that on a final hearing, orders will be made for the winding up of Willow Glade and Pazoluca on the just and equitable ground. There seems to be an irretrievable breakdown in the relationship between Mr Feldman and Mr Bamford. 28 In relation to the exercise of discretion the circumstances are unusual in that the freezing order made by the Supreme Court itself prevents the dissipation of assets. The circumstances of urgency, however, are of a different kind. First, in the Supreme Court proceeding, SFG has filed a notice of motion seeking summary judgment and the motion was to be before the Court this coming Friday 10 July. Accordingly, it was urgent that Willow Glade and Pazoluca be in a position by then to inform the Supreme Court of the position that they respectively take. As Mr Beech-Jones SC, who appeared for SFG observed, it may be that provisional liquidators will not be able to resolve their position finally by this coming Friday, but at least matters will be advanced further than they would if left in the hands of Messrs Bamford and Feldman. 29 The second consideration showing urgency is the possible insolvency of companies in the group. In addition to the circumstances previously mentioned is the fact that for the year ended 30 June 2008, the following companies made losses: Secure Archives, Willow Glade and Renaza, as did the Willow Glade Unit Trust. Of all the companies mentioned only Revived Rubber made a profit – and that was a modest profit of $87,038.79. It is desirable as a matter of urgency that an independent person investigate the financial position of Willow Glade, Pazoluca and the subsidiaries. 30 For the above reasons I was persuaded that liquidators should be appointed provisionally. 31 It was debatable whether an undertaking as to damages should be required because there was a question whether, in the unusual circumstances, the companies could be caused loss by the appointment of a provisional liquidator if on the final hearing (which should occur at an early date) a winding up order should be refused. I need say no more: Beautree through its counsel proffered the usual undertaking as to damages which the Court accepted. CONCLUSION 32 It was for the above reasons that on 7 and 8 July 2009 I made the orders that appear at the front of these reasons for judgment. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren. Associate: Dated: 9 July 2009 Counsel for the Plaintiff: Mr R D Marshall and Mr P K Bruckner Solicitor for the Plaintiff: Whitehead Cooper Williams Counsel for Speciality Fashion Group Limited: Mr R T Beech-Jones SC and Mr M A Friedgut Solicitor for Speciality Fashion Group Limited: Arnold Bloch Leibler Date of Hearing: 7, 8 July 2009 Date of Orders: 7 and 8 July 2009 Date of Judgment: 8 July 2009