FEDERAL COURT OF AUSTRALIA M Webster Holdings Pty Limited (administrators appointed) v Specific Freight Pty Limited [2017] FCA 269 File numbers: NSD 288 of 2017 Judge: YATES J Date of judgment: 2 March 2017 Catchwords: CORPORATIONS – Application for disposal of goods under s 442C(2) of the Corporations Act 2001 (Cth) – sale of relevant goods in the ordinary course of business Legislation: Corporations Act 2001 (Cth) s 436A(1), s 442C(1), s 442C(2), s 442CC(2), s 447D, s442CC Storage Liens Act 1936 (NSW) s 4 Date of hearing: 2 March 2017 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 16 Counsel for the Plaintiffs: Mr D Cook SC Solicitor for the Plaintiffs: Polczynski Lawyers Counsel for the Defendant: Mr N Bender Solicitor for the Defendant: DLA Piper ORDERS NSD 288 of 2017 BETWEEN: M WEBSTER HOLDINGS PTY LIMITED ACN 003 766 925 (ADMINISTRATORS APPOINTED) First Plaintiff GEOFFREY AND ANDREW BARNDEN IN THEIR CAPACITIES AS JOINT AND SEVERAL VOLUNTARY ADMINISTRATORS OF M WEBSTER HOLDINGS PTY LIMITED (ADMINITRATORS APPOINTED) ACN 003 766 925 Second Plaintiffs AND: SPECIFIC FREIGHT PTY LIMITED ACN 006 664 124 Defendant JUDGE: YATES J DATE OF ORDER: 2 MARCH 2017 THE COURT NOTES: 1. The undertaking given by the second plaintiffs that they will meet all lawful charges incurred by the defendant in relation to the goods set out at Schedules 1 to 3 of the Originating Process dated 28 February 2017 (the Originating Process) to the extent such charges are provided for by s 4 of the Storage Liens Act 1935 (NSW), within 2 business days of presentation of an invoice. THE COURT ORDERS THAT: 2. Leave be granted to the plaintiffs to file an amended originating process. 3. The goods comprising clothing held in the shipping containers and loose cartons set out in Schedule 1 of the Originating Process held by the defendant be made available to the first plaintiff within 3 hours of service of this order. 4. The goods comprising clothing held in the shipping containers and loose cartons set out in Schedule 2 of the originating process to be delivered to the defendant be made available by the defendant to the first plaintiff within two business days of service of this order, subject to any delay not within the control of the defendant and subject to any co- operation required from the plaintiffs. 5. The goods comprising clothing held in the shipping containers and loose cartons set out in Schedule 3 of the Originating Process to be delivered to the defendant be made available by the defendant to the first plaintiff within two business days of receipt of those goods by the defendant, subject to any delay not within the control of the defendant and subject to any co-operation required from the plaintiffs. THE COURT: 6. Makes a direction pursuant to s 447D of the Corporations Act 2001 (Cth) (the Act) that the second plaintiffs are justified in selling the goods described in Schedules 1 to 3 of the Originating Process (the Goods) in the ordinary course of the first plaintiff's business. THE COURT FURTHER ORDERS THAT: 7. The second plaintiffs cause the first plaintiff to set aside from the net sale proceeds of the Goods, as a separate fund, an amount representing the invoiced value of the Goods (the Set Aside Fund) sold by the plaintiffs. 8. The plaintiffs serve their amended originating process and these orders on each of: (a) Scanwell Logistics China; (b) Scanwell Logistics Vietnam; (c) Taha Pazarlama ve Magazacilik A.S.; (d) Yen of London Co. Limited; (e) New World Fashion Limited; (f) Shanta Garments Limited; and (g) such other persons who notify the second plaintiffs of an interest in any of the Goods within 14 days of the making of these orders, along with a notice requiring those entities to make any claim to this Court in respect of the Set Aside Fund within 21 days of such service (the Notice Period). 9. After the expiration of the Notice Period, the plaintiffs may release from the Set Aside Fund the amount representing the invoiced value of the invoices of suppliers who have not made a claim in respect of the Set Aside Fund and who have been served with the notice in Order 8 or who have consented to the release of those funds. 10. Subject to Order 9, the plaintiffs not release any funds from the Set Aside Fund without further order of the Court. 11. The plaintiffs' costs of their application be costs in the administration. 12. Leave to apply be granted to the parties for the purpose of working out these orders and to seek further directions under s 447D of the Act. 13. Leave be granted to any person, with sufficient interest, to move the Court to vary or discharge these orders on 24 hours' notice. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT (REVISED FROM TRANSCRIPT) YATES J: 1 This matter comes before the Court this afternoon as a matter of urgency. The matter first came before the Court on the afternoon of 28 February 2017, at which time I made orders for abridged service, bringing the matter back to the Court this afternoon. 2 The second plaintiffs are the administrators of the first plaintiff, M Webster Holdings Pty Limited (administrators appointed) (the company). They were appointed on 1 February 2017 pursuant to a resolution by the sole director of the company under s 436A(1) of the Corporations Act 2001 (Cth) (the Act). 3 The company operates a business involving the sale of women's clothing under the brands "Marcs" and "David Lawrence". It has 48 standalone stores which trade under those brands. There are, in addition, 10 factory outlets and 140 concession stores operating out of David Jones and Myer department stores, and one concession store operating out of a Harris Scarfe department store. The company also operates online stores selling both "Marcs" and "David Lawrence" branded products. The company has in excess of 1000 employees. As voluntary administrators, the second plaintiffs are continuing to trade the business with a view to securing a purchaser for it. They have formed the view that this course of action is most likely to maximise the return to creditors. 4 The defendant, Specific Freight Pty Limited (Specific Freight), was engaged by the company to provide freight forwarding services to it in respect of stock purchased from overseas suppliers. These suppliers are located mainly in China. 5 At the time of the second plaintiffs' appointment as administrators, the company had ordered goods that had been delivered to Specific Freight for forwarding to the company or were still in transit from overseas suppliers to the company. The subject matter of the present application concerns goods that have cleared customs and are held by Specific Freight but not yet physically delivered to the company (undelivered goods), goods which are yet to clear Customs but, after that, will be held by Specific Freight (uncleared goods), and goods that are still in transit and are yet to arrive in Australia (goods in transit). The goods comprise, variously, clothing and fashion accessories and, in the case of the undelivered goods, shop fixtures. 6 According to the second plaintiffs' inquiries, the company does not have written terms of trade with any of the suppliers of these goods. It would appear that the company's purchase orders and the suppliers' invoices evidence the agreements for the sale of the goods. 7 In an affidavit made in support of the present application, Mr Barnden, who is one of the second plaintiffs, deposed that, according to his inquiries, goods ordered by the company and shipped by sea are delivered to Specific Freight for forwarding to the company by the following process. The company places a purchase order with the supplier for the supply of the goods. The goods are then manufactured by the supplier and delivered to warehouses in the country of origin. The supplier then renders an invoice to the company in respect of the goods. Where freight is to be delivered from Vietnam or China, a freight forwarder, Scanwell Logistics (Scanwell), reviews the orders and packs the goods held at warehouses (to which the suppliers have delivered the goods) into containers for delivery to specific stores of the company. In other countries, other freight forwarding companies provide the same services. As part of the process, goods produced by different suppliers may be packed into the one container. The containers are then loaded for transport to Australia by ship. Scanwell provides either a forwarder's cargo receipt or an international bill of lading to the shipper, specifying the company as the consignee and Specific Freight as the forwarding agent. 8 Mr Barnden has deposed that, according to his review of records maintained on the Personal Property Securities Register, no security interests are registered by any of the suppliers in respect of the undelivered goods, the uncleared goods or the goods in transit. Invoices rendered by these suppliers in respect of these goods remain unpaid. The second plaintiffs consider that these suppliers are unsecured creditors in the administration of the company. However, some of these suppliers have indicated on their invoices that they reserve title in the goods pending payment for them. 9 The present dispute concerns, specifically, Specific Freight. Initially, it was unwilling to release goods held by it to the plaintiffs until its costs were paid. That issue was resolved by the payment of those costs. As a consequence, the goods previously held by Specific Freight were released. There remains a question about Specific Freight's future costs if the relief sought today is granted. That question has been successfully resolved by an undertaking proffered to the Court by the second plaintiffs to the effect that they will meet all lawful charges incurred by Specific Freight in relation to the undelivered goods, uncleared goods and goods in transit to the extent that such charges are provided for by s 4 of the Storage Liens Act 1935 (NSW) within two business days of presentation of an invoice rendered by Specific Freight after delivery of the goods to the company. 10 The second matter is that Specific Freight is unwilling, in the absence of a court order, to release further goods held by it because of demands made upon it by various overseas suppliers to return the goods or to divert the goods to other customers. The present urgency is that the failure by Specific Freight to release the goods has resulted in delay in delivering stock to the company's retail stores and to purchasers who have purchased the company's fashionwear online. Also, the lack of stock held by the company's retail and online stores is limiting the sales that the company is able to achieve. There is evidence before the Court of the financial impact that this has had and is likely to have in the future unless the relief sought today is granted. 11 Apart from the matters to which I have referred, the loss in revenue, and particularly future revenue, by the company as a consequence of Specific Freight's failure to deliver may have a serious impact on the second plaintiffs' ability to secure a purchaser for the company's business as a going concern. Any negative impact on the sale price of the business would, of course, have a detrimental effect on all creditors of the company, including, I would add, employees involved in the business. 12 Section 442C(1) of the Act imposes a prohibition on the administrator of a company under administration disposing of property of the company that is subject to a security interest or property (other than PPSA retention of title property) that is used or occupied by or in the possession of the company but of which someone else is the owner or lessor. This prohibition does not, however, apply to a disposal in the ordinary course of the company's business, amongst other exceptions: see s 442C(2). The goods in question here constitute property that the plaintiffs seek to dispose of by way of sale in the ordinary course of the company's business. 13 Section 442CC(2) of the Act imposes a regime with respect to the proceeds of sale of property that is subject to a retention of title clause. In effect, s 442CC(2) requires the net proceeds of sale to be set aside and applied to meet the claims of the suppliers whose goods are subject to such a clause. 14 In the present case, the second plaintiffs propose a regime whereby an amount representing the invoice value of the goods in question be set aside to form a fund out of which suppliers of the goods in question may make a claim. The regime also provides for service of the Court's orders on particular suppliers and on any other person who can notify the second plaintiffs of an interest in the relevant goods within 14 days. The regime then provides for the relevant suppliers and persons to make a claim on the fund within 21 days of service of the Court's orders. 15 The second plaintiffs seek a direction from the Court pursuant to s 447D of the Act that they are justified in selling the relevant goods, in the ordinary course of the company's business, subject to observance of the regime to which I have referred. I am satisfied that it is appropriate to give that direction. I am also satisfied that the regime that is proposed will provide adequate protection to the suppliers in question, such as envisaged by s 442CC of the Act. 16 I am conscious of the fact that the suppliers are not before the Court and that counsel appearing for Specific Freight this afternoon does not appear in their interest. However, I am satisfied that, on balance, the considerations to which I have referred weigh in favour of the relief sought by the plaintiffs in that it will address the likely damage that the company will suffer if such relief is not granted, yet provide a pool of funds representing the invoice value of the goods out of which the suppliers can seek to obtain payment, which must, it seems to me, be their primary concern. I will, nevertheless, make an order that any person demonstrating sufficient interest will have leave to move the Court on 24 hours' notice to vary or discharge the orders I will make. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates. Associate: Dated: 2 March 2017