Supreme Court New South Wales Medium Neutral Citation: In the matter of Ming Tian Real Property Pty Ltd [2021] NSWSC 912 Hearing dates: 19 July 2021 Date of orders: 19 July 2021 Decision date: 19 July 2021 Jurisdiction: Equity - Corporations List Before: Black J Decision: Administrators' application for adjournment of winding up dismissed and administrators to pay costs of the application. Orders otherwise made winding up the company in insolvency. Catchwords: CORPORATIONS — Winding up — Practice and procedure — Application for adjournment of winding up — Where administrators recently appointed — Whether requirements satisfied. CORPORATIONS — Winding up — Insolvency — Where application founded upon unpaid creditor's statutory demand. COSTS – Costs of unsuccessful application to adjourn winding up application — Whether administrators should be liable for those costs. Legislation Cited: - Corporations Act 2001 (Cth), ss 440A, 467 Cases Cited: - FPM Constructions v Council of the City of Blue Mountains [2005] NSWCA 340 - Maylord Equity Management Pty Ltd v Reel Time Media Ltd (No 2) [2008] NSWSC 1133 - Re Australian Tailings Group Pty Ltd [2020] NSWSC 1543 - Re Glenvine Pty Ltd [2020] NSWSC 642 - Re I-Prosperity Capital Pty Ltd [2020] NSWSC 1116 - Re Integrated Green Energy Solutions Ltd (admins apptd) [2021] NSWSC 620 - Re Offshore and Ocean Engineering Pty Ltd [2012] NSWSC 1296 Category: Principal judgment Parties: Luckyfloor Pty Ltd (Plaintiff) Ming Tian Real Property Pty Ltd (Administrator of Defendants) Representation: Counsel: A Katsoulas (Plaintiff) J Hidayat (Solicitor – Administrator of Defendants) Solicitors: KWL Lawyers (Plaintiff) Piper Alderman (Administrator of Defendant) File Number(s): 2021/88758 Judgment – ex tempore (Revised 20 July 2021) Application for adjournment of winding up application 1. The administrators ("Administrators") who were yesterday appointed to Ming Tian Real Property Pty Ltd (Admins Apptd) ("Company"), after it had been subject of a winding up application for some time, seek an adjournment of that winding up application until 2 August 2021, under s 440A of the Corporations Act 2001 (Cth) or alternatively under s 467 of the Act. 2. The Administrators rely, first, on the affidavit dated 12 July 2021 of Mr Meng Dai, the Company's director. He there refers to a put and call option entered into between two other persons and another company, 43 Beane Street Pty Ltd ("43 Beane Street"), in respect of a property at Gosford. He notes that the sole director of 43 Beane Street is his wife, and all of the outstanding shares in that company are owned by a family trust, which is his and his wife's family trust. Although he is not a director of 43 Beane Street, he says that he is responsible for its day to day affairs and the affairs of the corporate trustee of the trust, and indicates his intention (later abandoned) to cause 43 Beane Street to nominate the Company as grantee of the option under the contract to purchase that property. He also refers to a loan approval from a third party to fund the purchase of the property, and that the lender will, oddly, lend the amount of $7.8 million on a property to be purchased for $4.6 million, so as to give rise to a surplus which could be applied to the Company's affairs. 3. As events have developed, it appears that Mr Dai no longer has that intention, and now does not intend to make that property or those funds available to the Company, but instead to use them himself to fund a possible Deed of Company Arrangement ("DOCA") now that the Company has been placed in voluntary administration. Mr Dai also refers to steps which have been made to pay out several creditors of Ming Tian, in the course of the winding up application. It remains that Luckyfloor Pty Ltd ("Luckyfloor"), the substituted creditor in this application, has not been paid, nor have the three supporting creditors who now appear in respect of the winding up application. 4. The Administrators also rely on the affidavit of Mr Campbell-Wilson, who is one of the Administrators, who refers to his appointment as joint and several administrator of the Company yesterday, on Sunday 18 July 2021. It should not be expected that Mr Campbell-Wilson has had a significant amount of time to conduct investigations in respect of the Company's affairs between his appointment yesterday and his application today for an adjournment of the winding up application. Mr Campbell-Wilson says that he has been informed by Mr Dai and believes certain matters, including that it is Mr Dai's intention to put forward a DOCA proposal, which is to be funded from funds sourced from the loan referred to in his earlier affidavit which, as I noted above, was previously said by Mr Dai to be a loan in respect of a property to be purchased by the Company rather than by Mr Dai personally. Mr Campbell-Wilson also refers to his belief, based on what he was told by Mr Dai, that Mr Dai is in discussions with his wife and accountant to formulate a proposal. That "belief" must plainly be qualified by the fact that Mr Campbell-Wilson was appointed only yesterday and by applying a degree of professional scepticism to what he has been told by Mr Dai. 5. Mr Campbell-Wilson fairly notes that the Administrators have not yet had the chance to undertake investigations into the Company's affairs and have not considered what recovery actions may be available in a liquidation scenario. He also indicates that he is presently unable to inform creditors as to whether a DOCA would result in a better outcome for creditors than a liquidation. That seems to be the case, since Mr Campbell-Wilson has presently no basis to believe that a DOCA will ultimately be proposed by Mr Dai, or could be funded by Mr Dai, still less to forecast what its terms might be. Mr Campbell-Wilson also notes the unlikelihood of significant recoveries in a liquidation, and he seems to be correct in that respect. Mr Campbell-Wilson seeks an adjournment to allow the Administrators to "continue our investigations" (although that perhaps could have been more accurately expressed as commencing investigations, since he will have had little opportunity to conduct investigations since his appointment yesterday) and to allow negotiations in relation to Mr Dai's possible DOCA proposal to take place. 6. Mr Hidayat, who appears for the Administrators, summarises the case law in respect of ss 440A and 467 of the Act and notes that the Court must adjourn a winding up application if it is satisfied that it is in the creditors' best interests to do so and may adjourn a winding up application, as a matter of discretion, in other circumstances. He refers to several cases as to the circumstances in which the Court has adjourned a winding up application in respect of a voluntary administration, including where an administrator had recently been appointed, and indicates that the Administrators seek a short adjournment where they have only recently been appointed. 7. Mr Katsoulas, who appears for Luckyfloor, in turn refers to the history of the winding up application, commenced on 30 March 2021, now nearly four months ago, by a first creditor, who was then paid out, and to Luckyfloor's substitution as Plaintiff in the winding up application on 21 June 2021. He notes a matter on which Mr Hidayat also relies, that the Company has not opposed the winding up application by reference to any contention that it is solvent, but instead indicated in its Notice of Appearance that it simply sought to adjourn the hearing of the winding up application. Mr Hidayat relies on that proposition to distinguish this case from earlier cases where a company has contended that it is solvent and then reversed its position and appointed an administrator shortly before a hearing of a winding up application. It is not clear to me that a company that does not contend it is solvent should be in a stronger position than a company that had previously contended that it was solvent in that respect. Mr Katsoulas also refers to previous indications by the Company that it was seeking to pay the Plaintiff and other supporting creditors, a matter on which Mr Hidayat also relies. 8. Mr Katsoulas draws attention to the relevant principles under s 440A of the Act, and notes the requirement that the Court be satisfied that there is a sufficient possibility, as distinct from mere optimistic speculation, that the interests of creditors would be advantaged by an adjournment of the winding up application. He refers to the observations of Brereton J in Re Offshore and Ocean Engineering Pty Ltd [2012] NSWSC 1296 as to the Court's likely scepticism where an administrator is appointed following resistance to a creditor's statutory demand and the initiation of the winding up proceedings. I again bear in mind Mr Hidayat's submission that the Company had here not contended for its insolvency, and also bear in mind that the matter was listed for directions today and would not necessarily have reached a hearing, absent the recent appointment of the administrator which has raised the question of adjournment under ss 440A and 467 of the Act. 9. Mr Katsoulas also refers to my observations in Re Australian Tailings Group Pty Ltd [2020] NSWSC 1543 at [7], where I observed that the prospects of an application for an adjournment are not improved where an administrator simply leads evidence of information provided to him by a director, without knowing whether it is correct or not, and that: "If an administrator is appointed so late that he has no real understanding of the company's affairs, then a winding up will less readily be adjourned and an administration less readily extended, because the Court will less likely be satisfied that it is in fact in the interests of the company's creditors for the company to continue under voluntary administration. I recognise that, in some cases, there will be value in the continuance of voluntary administration, at least to allow further investigations to be made, but that will turn on there being sufficient evidentiary basis for the Court to conclude that the making of those investigations is itself in creditors' interests." 1. I also bear in mind that the Administrators' evidence, as Mr Hidayat points out, that they have been placed in funds by the director for the costs of the voluntary administration, at least for a relatively short period. That, however, it seems to me to be a neutral factor rather than supporting an adjournment since it simply has the consequence that the costs of the voluntary administration will not reduce the return to creditors until the amount provided by Mr Dai to the Administrators runs out. 2. I am not satisfied for the purposes of s 440A of the Act that it is in the interests of the Company's creditors for the Company to continue under administration rather than be wound up. I recognise that that would allow the Administrators to undertake investigations, but there is nothing in the evidence before me to suggest that those investigations are likely to advance the position of creditors, beyond the position in a liquidation. To the extent that the Company has claims against third parties, which appear to be disputed, they may be pursued by a liquidator. The proposition that a DOCA will be forthcoming seems to me to be no more than speculation, where it depends upon the somewhat odd funding arrangements in respect of the purchase of the Gosford property by 43 Beane Street, involving borrowing much more than would be paid to acquire the property; originates in a company that Mr Dai does not control; and depends upon further discussions between Mr Dai, his wife and his accountant. I am also satisfied, for the same reasons, that there is no reason, as a matter of discretion, to adjourn the winding up application under s 467 of the Act. I bear in mind that Mr Hidayat has reserved the opportunity to submit that the winding up application could not in any event proceed today, but that will depend upon the extent of any documentation that is not present, its significance and whether the Court should dispense with the requirement for it, and the time which would be required to deliver that documentation if it is not present. 3. For these reasons, I dismiss the Administrators' application for an adjournment of the proceedings, and I will order that the Administrators pay the costs of and incidental to the adjournment application. 4. Following further submissions by Mr Hidayat, I have reserved the opportunity for the Administrators to be further heard as to the costs order that I proposed to make against them in respect of the application to adjourn the winding up application. I will direct the Administrators and Luckyfloor to submit agreed orders as to that question by 4pm on 21 July 2021, or otherwise their respective submissions as to whether the costs order made today in respect of the adjournment application should be maintained or varied. Application for winding up order 1. By Originating Process filed on 30 March 2021, the then Plaintiff, Rissafety Pty Ltd ("Rissafety") applied for the winding up of the Company on the grounds of insolvency. That application was founded on an unsatisfied creditor's statutory demand dated 24 February 2021, which in turn relied on a judgment debt in the Local Court of New South Wales. That application was verified by an affidavit dated 30 March 2021 of Ms Peta Covington, which referred to the amount of that judgment debt and to accrued interest and confirmed that the amount claimed was then due and payable to Rissafety. A consent of liquidator of Mr Maxwell Prentice of BPS Recovery was filed in respect of that application. There is no issue as to service of the application, since the Company had appeared in respect of the application, up to the point that the Administrators were appointed yesterday and appeared today in the unsuccessful application to adjourn the winding up application. There is evidence of publication of the winding up application on the ASIC Insolvency Notices website on 14 April 2021, and of lodgment of a Form 519 Notification of Court Action in relation to a winding up with the Australian Securities and Investments Commission, in Mr Basta's affidavit dated 14 April 2021. 2. It appears that the Rissafety was then paid out and, by Interlocutory Process filed on 7 June 2021, Luckyfloor sought and obtained an order that it be substituted in the winding up application. By its Amended Originating Process, Luckyfloor sought an order that the Company be wound up in insolvency. An affidavit dated 7 June 2021 of Jintao Liu confirms that a debt of $256,893.87, being the unpaid amount of a judgment obtained in the District Court of New South Wales, was due and payable to Luckyfloor at the date of filing of the Originating Process and is still due and payable. 3. I am satisfied that Luckyfloor properly brings the winding up application, as a substituted creditor, and I have referred to the evidence of an unpaid judgment debt still due and payable to it. It has the benefit of the presumption of insolvency, which arises from the unsatisfied creditor's statutory demand previously issued by Rissafety to the Company. The Company has not contended, in response to the winding up application, that it is solvent, but only that the winding up application should be adjourned, which I have now declined to do. The evidence led by the Administrators in the adjournment application is also suggestive of the Company's insolvency. 4. I am satisfied that the requirements for a winding up order are satisfied. I make orders in accordance with the short minutes of order provided by the Luckyfloor, initialled by me and placed in the file. Further submissions as to costs of the adjournment application 1. As I noted above, I originally indicated that I proposed to order that the Administrators pay the costs of and incidental to the adjournment application, but reserved the opportunity for the administrators to be further heard as to that costs order. By their submissions made on 21 July 2021, the Administrators' solicitors submitted that, where a company in administration unsuccessfully seeks an adjournment under ss 440A or 467 of the Act, the Courts have typically ordered that the plaintiff's costs of the adjournment application be paid out of the company's assets. They refer to several decisions in which that course has been taken, including Re I-Prosperity Capital Pty Ltd [2020] NSWSC 1116 and Re Integrated Green Energy Solutions Ltd (admins apptd) [2021] NSWSC 620. They also acknowledge that an order was made against an administrator personally in Re Glenvine Pty Ltd [2020] NSWSC 642 where the administrator personally filed an unsuccessful interlocutory application for the adjournment. They also refer to the circumstances in which costs orders may be made against a non-party, as summarised in FPM Constructions v Council of the City of Blue Mountains [2005] NSWCA 340, which include, in the context of a liquidation, where the source of funds was a non-party or its principal, the conduct of the litigation was unreasonable or improper and the unsuccessful party was insolvent or could otherwise be described as a person of straw. I will return to those matters below. They submit that the application for an adjournment was brought by the Company rather than the Administrators and that the ordinary approach is that costs of a failed adjournment application are costs of the winding up which will, implicitly, be borne by creditors rather than the Administrators. They submit the order I proposed to make should be varied to provide that Luckyfloor's costs of the adjournment application be costs in the winding up. 2. Mr Katsoulas supported the order that I had proposed to make on 19 July 2021. He submitted that, at least as a matter of substance, the application to adjourn the winding up was brought by the Administrators and referred to paragraph 11 of Mr Campbell-Wilson's affidavit which proceeded on that basis. Mr Katsoulas also refers to the observations of Palmer J in Maylord Equity Management Pty Ltd v Reel Time Media Ltd (No 2) [2008] NSWSC 1133 at [12], where his Honour observed that: "Administrators, like liquidators, must realise that they have personal liability for actions that cannot reasonably be regarded as taken in the interests of the creditors of a company as a whole. The remaining assets of an insolvent company are not to be exhausted by litigation undertaken by, or provoked by, administrators or liquidators acting unreasonably." 1. Mr Katsoulas also submitted that the Administrators appeared to have taken no steps to determine whether the adjournment application was in the best interests of the Company's creditors and to have uncritically accepted assertions from Mr Dai and speculated that a DOCA could be funded through a "confusing loan arrangement"; that they had not acted reasonably in creditors' best interests in bringing the adjournment application; and that it would be unjust for Luckyfloor to be limited to recovering its costs as a result of the Administrators' unsuccessful application to adjourn the winding up against an insolvent company. 2. I am satisfied that the order that I originally proposed is the proper order, for three reasons. First, as Mr Katsoulas points out, t Mr Campbell-Wilson's affidavit had recognised that the Administrators were, in substance, the proponents of the adjournment application. Second, as Mr Katsoulas submits and as is implicit in my findings above, it is difficult to see how the Administrators could have formed the view that the adjournment application was in creditors' interests, where they had been in office for only a day and the funding of the proposed DOCA depended on a borrowing by another company that Mr Dai did not control of substantially more than a property that it was to acquire was worth, and then diverting the additional amount borrowed (which was previously to be made available to the Company) to Mr Dai to fund the DOCA. Third, and importantly, I have referred above to the Administrators' submission that the costs of the administration would not be to the disadvantage of the Company's creditors, because Mr Dai had provided a capped indemnity for their costs. It would be inconsistent with that submission for Luckyfloor's costs of the adjournment application now to be borne by creditors as costs in the winding up, rather than by the Administrators who may rely upon the indemnity they had obtained from Mr Dai to meet those costs. For these reasons, I will not vary the costs orders that I made on 19 July 2021. ********** 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: 03 August 2021