Supreme Court New South Wales Medium Neutral Citation: In the matter of Pages Equipment Holdings Pty Ltd (admin apptd) [2020] NSWSC 959 Hearing dates: 24 July 2020 Date of orders: 24 July 2020 Decision date: 24 July 2020 Jurisdiction: Equity - Corporations List Before: Black J Decision: Provisional liquidators appointed to several companies and voluntary administrations terminated. Catchwords: CORPORATIONS — Winding up — Application to appoint provisional liquidator under s 472(2) of the Corporations Act 2001 (Cth) — Where companies are in voluntary administration – Whether there is reasonable likelihood that winding up order would be made at final hearing – Whether balance of convenience supports appointment of provisional liquidators. Legislation Cited: Corporations Act 2001 (Cth), s 440A(3), s 472(2) Cases Cited: - Australian Securities and Investment Commission v Sino Australia Oil and Gas Ltd [2015] FCA 531, (2015) 106 ACSR 575 - Australian Securities Commission v Solomon (1996) 19 ACSR 73 at 80 - Lubavitch Mazal Pty Ltd v Yeshiva Properties No 1 Pty Ltd [2003] NSWSC 535; (2003) 47 ACSR 197 - Re New Cap Reinsurance Corporation Holdings Pty Ltd [1999] NSWSC 536; (1999) 32 ACSR 234 - Re Therma Truck Pty Ltd [2016] NSWSC 266 Category: Principal judgment Parties: Pages Property Investments Pty Ltd (Plaintiff) Anthony Robert Cant and Renee Sarah Di Carlo as joint and several administrators of Pages Equipment Holdings Pty Ltd and Pages Sales Pty Ltd (First Defendant) Pages Equipment Holdings Pty Ltd (Administrators Appointed) (Second Defendant) Pages Sales Pty Ltd (Administrators Appointed) (Third Defendant) Peter Robert Vince and Paul William Langdon as joint and several administrators of Phire Pty Ltd (Fourth Defendant) Phire Pty Ltd (Administrators Appointed) (Fifth Defendant) Attila Boros (Sixth Defendant) Stephen Malcolm Thatcher (Seventh Defendant) Pages Austructures Pty Ltd (Eighth Defendant) Representation: Counsel: M White/R Gration (Plaintiff) A Dogan (First and Third Defendants) J Giacco (Solicitor) (Fourth and Fifth Defendants) A Boros (self-represented) (Sixth Defendant) A Spencer (Seventh Defendant) M O'Connor (Solicitor) (Eighth Defendant) Solicitors: WMD Law (Plaintiff) ERA Legal (First and Third Defendants) Craddock Murray Neumann (Fourth and Fifth Defendants) A Boros (self-represented) (Sixth Defendant) Matthews Folbigg (Seventh Defendant) Addisons (Eighth Defendant) File Number(s): 2020/205722 Judgment – ex tempore (revised 24 july 2020) Nature of the application 1. By Originating Process filed on 13 July 2020, the Plaintiff, Pages Property Investments Pty Ltd ("PPI"), sought an order under s 472(2) of the Corporations Act 2001 (Cth) that Mr Gothard and Ms Duggan of KPMG be appointed provisional liquidators jointly and severally of the Second, Third, Fifth and Eighth Defendants. 2. The Second Defendant is Pages Equipment Holdings Pty Ltd ("PEH") and, in the event, Mr Gothard and Ms Duggan have presently been appointed as voluntary administrators of that company. The Third Defendant is Pages Sales Pty Ltd ("Sales"), of which Mr Cant and Ms Di Carlo of the firm of Romanis Cant have presently been appointed as voluntary administrators. They have advised the Court, by an email from their solicitors dated 23 July 2020, that they do not seek to be heard on this application and adopt a neutral position, "other than to briefly draw the Court's attention to some consequences of the appointment of provisional liquidators" to Sales. In the event they did not seek to address that question. They also did not read any evidence to respond to the matters raised in the course of the application. 3. The Fifth Defendant, Phire Pty Ltd (admins apptd) ("Phire") is also in voluntary administration and Messrs Vince and Langdon have been appointed as voluntary administrators to that company, after it emerged from a previous deed of company arrangement of which Mr Cant was also the deed administrator. The Eight Defendant, Pages Austructures Pty Ltd ("Austructures"), against which relief was also sought on 13 July 2020, has only recently retained solicitors and is not presently in voluntary administration. I have deferred dealing with the application in respect of that company until after the delivery of this judgment dealing with the position in respect of PEH, Sales and Phire. Applicable principles 1. I should first refer to the applicable principles. Section 472(2) of the Corporations Act relevantly provides that the Court may appoint a registered liquidator provisionally at any time after the filing of a winding up application and before the making of a winding up order. In the present circumstances, where the three companies which are the subject of this judgment are presently in voluntary administration, s 440A(3) of the Corporations Act is also relevant. That section provides that the Court is not to appoint a provisional liquidator of a company if the company is under administration and the Court is satisfied that it is in the interests of the company's creditors for the company to continue under administration rather than have a provisional liquidator appointed. The structure of that section is substantially similar to that of s 440A(2) of the Corporations Act, which deals with the circumstances in which the Court will adjourn a winding up application, which has been the subject of substantial consideration in the authorities. 2. Putting aside the question of the fact that the companies are in voluntary administration for one moment the circumstances in which the Court will appoint a provisional liquidator are well-established and are addressed by Mr White, who appears with Mr Gration for PPI, in submissions. Mr White notes that the existence of a winding up application is a condition of the Court's power to appoint a provisional liquidator, and winding up orders are sought in respect of the three companies by PPI in the substantive proceedings. PPI has standing to seek that relief as a contributory of each of the companies. Mr White draws attention to a provisional liquidator's primary duty to preserve the status quo, so as to enable the Court to decide at a final hearing whether or not the relevant company should be wound up, and that proposition is well-recognised in the authorities. Mr White fairly also recognises that the Court will only appoint a provisional liquidator where it is satisfied that there is a reasonable prospect that a winding up order will be made, although that assessment plainly does not extend to any prejudgment of the substantive application as to that winding up order: Lubavitch Mazal Pty Ltd v Yeshiva Properties No 1 Pty Ltd [2003] NSWSC 535; (2003) 47 ACSR 197. Mr White also refers to circumstances where, at least on the application of the Australian Securities and Investment Commission, a provisional liquidator has been appointed notwithstanding that a company has already been placed in voluntary administration: for example, Australian Securities and Investments Commission v Sino Australia Oil and Gas Ltd [2015] FCA 531; (2015) 106 ACSR 575. 3. I bear in mind the observations of Tamberlin J in Australian Securities Commission v Solomon (1996) 19 ACSR 73 at 80 that the Court should only appoint the provisional liquidator where it is satisfied that there is a valid and duly authorised winding up application and that there is a reasonable prospect that a winding up order will be made; that any risk to the assets of the corporation is a relevant consideration; the Court should also have regard to the balance of convenience; and the appointment of a provisional liquidator may be appropriate in the public interest where there is a need for an independent examination of the state of a company's accounts by someone other than its directors or where the company's affairs have been carried on casually and without regard to due legal requirements, so as to leave the Court with no confidence that the company's affairs would be properly conducted with due regard for shareholders' interests. I bear in mind, however, that the latter factor is less relevant where a voluntary administrator has been appointed and the control of a company's affairs has passed from its directors to that voluntary administrator. I also bear in mind the observations of Barrett J in Re New Cap Reinsurance Corporation Holdings Pty Ltd [1999] NSWSC 536; (1999) 32 ACSR 234 at [23], which I followed in Re Therma Truck Pty Ltd [2016] NSWSC 266 at [19], that: "The power to appoint a provisional liquidator is by no means limited, the grounds on which a provisional liquidator may be appointed are infinite, and all that really has to be shown is that there is a bona fide application constituting sufficient ground for the making of that order." 1. There is little authority as to the operation of s 440A(3) of the Act, but that section raises a similar question to s 440A(2) of the Act as I noted above. Essentially, the court must ask itself a factual question, whether the interests of the company's creditors will be better served, in the relevant circumstances, by a provisional liquidator being appointed than by the continuance of the voluntary administration. The affidavit evidence 1. Turning now to the affidavit evidence, the Plaintiffs rely on three affidavits of Mr Coulter, two of which are dated 8 July 2020, and a third of which is dated 15 July 2020. Mr Coulter's first affidavit refers to the circumstances in which, on 3 July 2020, voluntary administrators were appointed to PEH, Sales and Phire. That appointment was made about three weeks before the commencement of these lengthy proceedings in this Court, in which those entities were Defendants, which have been some time in reaching a hearing which was due to commence on 28 July 2020. Mr Coulter notes that the First Defendant in those proceedings, Mr Boros, and the Third Defendant in those proceedings, Mr Thatcher, were the directors of PEH; Mr Thatcher was the sole director of Sales; and Mr Boros was the sole director of Phire. Mr Coulter's evidence is that, although PPI is a 50 per cent shareholder in each of Phire and PEH, and a 26.7 per cent shareholder in Sales, it was not given any notice of the proposed appointment. I bear in mind, however, that the appointment of a voluntary administrator is a question for a company's directors, where there is the requisite insolvency or likelihood of insolvency, and not a matter to be determined by shareholders at general meetings. Mr Coulter also refers to changes in the shareholding of Austructures at about the same time, which are said to support an inference that those changes were part of a wider restructuring that sought to divide the assets of several companies between Mr Boros and Mr Thatcher and their associated entities, to the exclusion of PPI as a substantial shareholder in the companies. I will defer questions in respect of Austructures, as I have noted above, which are not addressed in this judgment. 2. By his second affidavit dated 8 July 2020, Mr Coulter referred to correspondence received from the firm of Romanis Cant in relation to a lease by PEH of premises owned by PPI. The letter dated 8 July 2020, signed by Mr Cant as voluntary administrator of PEH and Sales, in turn stated that: "We are currently trading the business in a limited capacity while we assess the financial viability of both PEH and [Sales] as a going concern and as such we intend to occupy the premises for a period of time and will also arrange for an advertisement to be placed in the Financial Review regarding the sale of the business." 1. I pause to note that Mr Cant was then voluntary administrator of both PEH and Sales, although, as I have noted above, he only continued as voluntary administrator of Sales past the first meeting of creditors, and resigned as voluntary administrator of PEH and was replaced by Mr Gothard and Ms Duggan at that meeting. Mr Coulter also noted that PPI's solicitor had not then received any correspondence from the administrators appointed to Phire. 2. Mr Coulter's affidavit also annexes the Declaration of Relevant Relationships (as defined in s 60 of the Corporations Act) ("Declaration") in respect of Mr Cant, which discloses that Mr Cant had a previous relationship with companies within the Pages Hire Group and with Mr Boros as a director of those companies, and that discussions of a possible appointment of administrators to PEH and Sales had also continued for a significant period, and accelerated from at least March 2020. I will refer below to other evidence to the extent of Mr Cant's involvement with the Pages Hire Group. That Declaration also indicated that Mr Cant had previously been the deed administrator in respect of a deed of company arrangement proposed by Mr Boros for Phire, before that deed recently terminated, and that his firm had been engaged in October 2016 to review cash flow forecasts and budgets of the Pages Hire Group. It will not be necessary, in the circumstances of this application, to address any subtle question as to the extent to which previous advice given to a company may compromise the independence of an administrator. 3. By a further affidavit dated 15 July 2020, Mr Coulter addressed matters surrounding the 2016 deed of company arrangement involving Phire, and the advice then provided by Mr Cant's firm to companies within the Pages Hire Group, and also addressed issues that emerged from expert evidence in the substantive proceedings as to asset transfers that are alleged to have occurred out of Phire, before it was placed in voluntary administration in 2016. It is not necessary to reach any finding as to those matters for the purposes of this application. That affidavit also exhibited correspondence in respect of Mr Cant's engagement to provide advice to the companies in 2016. 4. PPI also relied on an affidavit of Mr Groundwater dated 10 July 2020, which referred to the present position of Austructures, which I have previously noted will be deferred to be dealt with subsequently, and addressed expert evidence led in the substantive proceedings raising an inference that assets had been transferred from other companies within the Pages Hire Group to Austructures. 5. PPI also relied on an affidavit of Mr Wheeler dated 23 July 2020. Mr Wheeler is a director of a competitor of the Pages Hire Group in the event hire business, and referred to discussions, initially with Mr Boros and Mr Thatcher, and subsequently with Mr Thatcher, as to the circumstances in which assets of companies in the Pages Hire Group would be sold after they were placed in voluntary administration. Mr Wheeler's evidence was that Mr Thatcher had told him that he had a "friendly administrator", referring to Mr Cant, which would make such a transaction "smooth", and also referred to a suggested arrangement between Mr Boros and Mr Thatcher to split the assets of the companies between them, implicitly to the exclusion of PPI. Mr Wheeler also referred to discussions with Mr Thatcher in which the latter proposed a transaction by which Mr Thatcher would acquire the companies' assets from the voluntary administrator, then Mr Cant, at a lower price, and then on-sell those assets or the relevant business to Mr Wheeler's company at a substantially increased price. I do not reach any conclusion as to whether Mr Cant was involved in that proposal, which is not necessary for the purposes of this application. I also recognise that, on occasion, assets may be sold out of an administration at a depressed price, because of the circumstances of the sale. It is, however, significant that Mr Thatcher was describing Mr Cant to a third party, and potential participant in the sales process, as a "friendly administrator", and promoting his ability to effect the transaction in the manner he proposed, which would plainly undermine any prospect that a sale process would maximise the value of assets in respect of the companies. It is also notable that these communications took place prior to the appointment of Mr Cant as voluntary administrator and that, also prior to Mr Cant's appointment as an administrator, Mr Thatcher advised Mr Wheeler, by a text message, that he had explained his "desired outcome" to Mr Cant who "seemed comfortable" with that outcome. Again, it is not necessary to reach a finding as to whether that accurately reflected Mr Cant's position, where the fact that Mr Thatcher had communicated that position to potential purchaser(s) of the assets must plainly undermine any sales process conducted in respect of those assets by Mr Cant. 6. Mr Boros, the First Defendant in the substantive proceedings and the Sixth Defendant in this application, served but did not read affidavit evidence to address these issues. Mr Thatcher has now settled, in principle, with PPI and also did not read such evidence; and Mr Cant also served, but did not read, evidence in response to the application. 7. Mr Vince and Mr Langdon, who have now been appointed as voluntary administrators of Phire, rely on Mr Langdon's affidavit dated 23 July 2020. There is no suggestion, in that affidavit or in the evidence generally, that there is any issue that undermines the independence of Mr Vince or Mr Langdon, so far as they have been appointed as voluntary administrators to that company. That affidavit discloses, in recording a conversation with Mr Boros on 3 July 2020, that Mr Boros perceived the voluntary administration process as a "means of resolving the impasse with the 50 per cent shareholder", implicitly PPI, which is presently the subject of these proceedings. Mr Langdon's evidence is also that Mr Boros had not disclosed the long-running proceedings brought by PPI to him, at the time of his appointment as voluntary administrator. Mr Langdon also refers to matters which have come to his attention have led him to conclude that Phire appears to be insolvent, notwithstanding the earlier deed of company arrangement to which it was party, and expresses the view that the allegations made against Mr Boros would warrant proper investigation. He indicates his view that it would be in the interest of creditors that Phire be placed in liquidation. I pause to note, however, that the view reached by a voluntary administrator is not determinative, because creditors at the second meeting of creditors may take a different course from that which the voluntary administrator recommends. Mr Vince and Mr Langdon indicate that they are prepared to be appointed as provisional liquidators of Phire if the Court concludes that such an appointment is appropriate. Determination 1. I turn now to the question whether, but for the appointment of voluntary administrators to the companies, provisional liquidators would be appointed to them. Mr White draws attention to several matters which would support such an appointment, and no party has made submissions, or led evidence, that took issue with those matters. Mr White submits that a winding up application is on foot in these proceedings, and that there are good arguable grounds for a winding up. It seems to me that that submission is made good, without reaching any final view as to the ultimate merits which are a matter for trial, because there is evidence of several transactions raising an arguable case for the diversion of assets from the companies, including to Austructures, and evidence of a proposal for the remaining assets of the companies now to be split between Mr Boros and Mr Thatcher, to which reference is made, for example, in Mr Wheeler's evidence, and which is consistent with the evidence of a transfer of shares in Austructures to which I have referred above. Plainly, there is also an arguable case that the companies could be wound up on the just and equitable grounds, both so far as there is a breakdown in trust and confidence between their directors and their shareholders, and so far as those transactions are concerned. Mr White also points out, and I accept, that the Court should proceed on the basis that the companies are at least likely to become insolvent if they are not actually insolvent, because that was the statutory basis for the appointment of voluntary administrators and, in the case of Phire, Mr Langdon's evidence is that the company is presently insolvent. Those matters suggest that there is a good arguable case for the winding up of the companies at a final hearing although I again emphasise, the Court will not determine that question on a final basis in an application of this kind. 2. Next, the question arises as to the balance of convenience and whether there is reason to appoint a provisional liquidator to the companies. It seems to me that the extent of transactions with company assets, including the evidence raising an arguable case as to the diversion of assets to Austructures, provides a basis for the appointment of a provisional liquidator, in order to preserve any remaining assets in the companies against the risk of further diversion, potentially, implemented by the sale of assets at undervalue within the voluntary administration process. Second, it seems to me that there are strong grounds for an independent investigation of the relevant transactions, which a provisional liquidator could undertake in the period pending a winding up application. The period of time available to a provisional liquidator, and the nature of his or her role, is such that he or she would have a greater focus on investigation, than a voluntary administrator would likely have within the relatively confined timetable available for a voluntary administration. 3. I now turn to the application of s 440A(3) of the Act, which applies when a company is under voluntary administration and the Court is satisfied that it is in the interests of the relevant company's creditors for the company to continue under administration rather than have a provisional liquidator appointed. I cannot reach that state of satisfaction for several reasons. The widest of those reasons, which applies in respect of each of the companies, including that to which Mr Gothard and Ms Duggan have been appointed as voluntary administrators, is that the voluntary administration process ultimately leads to a second meeting of creditors. There is a real possibility, raised by evidence of the conduct of the first meeting of creditors in respect of Sales, that those meetings may well proceed on a basis that PPI is not permitted to vote, and is therefore deprived of any voice in the outcome, notwithstanding its position as a contributory of the companies with substantial claims in these proceedings and those meetings are dominated by Mr Boros, Mr Thatcher and their associates. It also seems to me that the Court could not be satisfied, in circumstances where a winding up application on the grounds of oppression and the just and equitable grounds is well advanced, raises a seriously arguable case and is shortly to go to hearing, that it is in the interests of creditors generally that the voluntary administration be conducted, and its outcome ultimately determined by those creditors admitted to vote at the second meeting of creditors, rather than that a provisional liquidation take place, where the provisional liquidator would be an officer of the Court, appointed by the Court and subject to the Court's supervision. The independence of the provisional liquidator and his or her status as an officer of the Court seems to me to be a significant protection for creditors' interests in that situation. 4. There are also other grounds, which do not apply to all of the companies, on which it seems to me that the Court could not be satisfied that it is in the interests of the creditors for the companies to continue under administration. In respect of Sales, there are at least questions as to Mr Cant's independence, given his long relationship with the Pages Hire Group and the previous advisory role he has had in respect of that Group, and it is plain that Mr Thatcher has advised at least one third party and potential participant in a sale process that Mr Cant is a "friendly administrator". I again emphasise that I do not reach any finding as to the truth of that proposition, but it seems to me that the fact that Mr Cant has been portrayed in this way and that that proposition may be regarded by third parties as plausible, given Mr Cant's history as an adviser to the Group and as the deed administrator of a previous deed of company arrangement proposed by Mr Boros for Phire, will undermine any sales process that he undertakes. In those circumstances, it seems to me that it cannot be in the interests of Sales' creditors generally that any such process go forward under Mr Cant's control, by comparison with the position if a provisional liquidator is appointed, subject to the Court's control. 5. The position in respect of Phire turns on narrower questions because, as I have noted above, the evidence does not raise any question as to the independence of Mr Vince and Mr Langdon and they have fairly recognised that Phire should be placed in liquidation by reason of its insolvency. However, I am also not satisfied that it is in the interests of Phire's creditors for it to continue in a separate voluntary administration rather than for the same provisional liquidator to be appointed as to PEH and Sales for two reasons. First, there may well be advantages, given the structure of the Pages Hire Group, and the extent of transactions between Companies within it that require investigation, for a single provisional liquidator to be appointed to all three companies. It cannot be assumed that Mr Langdon and Mr Vince would have access, in their capacity as voluntary administrators or liquidators of Phire alone, to documentation that will disclose the relevant transactions, where that documentation may be held in other companies within the Group. 6. Second, as Mr Giacco, who appeared for Mr Langdon and Mr Vince fairly recognised, the activities of Phire, to the extent they previously existed and to any extent that they still exist, were conducted in New South Wales. Mr Langdon and Mr Vince practice in Dandenong, Victoria, and there would be significant practical difficulties for them, during the COVID-19 pandemic, in undertaking a voluntary administration of a company based in New South Wales. Mr Giacco fairly submits that, in some circumstances, voluntary administrators can conduct themselves by the way of the use of interstate agents. While I accept that proposition as a general matter, there seems little reason to take that course in respect of a company which conducted business in New South Wales solely because its directors chose to appoint an administrator who practices in Victoria, where that course would likely add additional costs to the conduct of the administration. 7. For those reasons, I also cannot be satisfied that it is in the interests of Phire's creditors for Mr Vince and Mr Langdon to continue as administrators of Phire. On balance, notwithstanding that there is no issue as to their independence raised in their application, it seems to me preferable that the same provisional liquidators practising in New South Wales be appointed for all three companies, and Messrs Vince and Langdon should not be left as separate voluntary administrators to or be appointed as separate provisional liquidators to Phire. 8. I do not neglect Mr Boros' submission that it would be disadvantageous to the companies' employees to have a provisional liquidator appointed. That submission is, however, unsupported by evidence, including as to the number or status of such employees and depends on speculation, both as to what will occur in respect of such employees in a voluntary administration, particularly if a sale of assets occurs at undervalue, and what would occur in respect of a provisional liquidation. There is no evidentiary basis, as matters stand, to assume that the outcome for employees will be any better in a voluntary administration, particularly if the companies are in truth insolvent, than in a provisional liquidation. 9. For these reasons, I will order that Mr Gothard and Ms Duggan be appointed provisional liquidators jointly and severally of the Second, Third and Fifth defendants, PEH, Sales and Phire. In those circumstances, I will also make an order that the voluntary administration of each of those companies terminate. It is plain that the Court has power to make such an order under s 447A of the Act or s 90-15 of the Insolvency Practice Schedule (Corporations) being Schedule 2 to the Corporations Act. I am satisfied that the purposes of Part 5.3A of the Act will be promoted by the making of that order. Once a provisional liquidator is appointed to the companies, the continued appointment of voluntary administrators to the companies would have no useful purpose. 10. I note that PPI sought an order that Mr Boros, as one of the directors who had appointed the voluntary administrators to these three companies, pay the costs of this application. It seems to me preferable that I do not determine that question at this point, where the substantive proceedings remain to be heard. I will order that the costs of the application be reserved. 11. For these reasons I make the following orders: 1. Mr Peter Gothard and Ms Robyn Duggan of KPMG be appointed provisional liquidators jointly and severally of Pages Equipment Holdings Pty Ltd (admin apptd); Pages Sales Pty Ltd (admin apptd); and Phire Pty Ltd (admin apptd). 2. The voluntary administration of each of Pages Equipment Holdings Pty Ltd, Pages Sales Pty Ltd and Phire Pty Ltd terminate with immediate effect from the appointment of the provisional liquidators. 3. The costs of the application be reserved. 4. These orders be entered forthwith. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 31 July 2020