New South Wales Supreme Court CITATION : AGC v AGAPEI [2002] NSWSC 1034 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 4876/01 HEARING DATE(S) : 24/10/02 JUDGMENT DATE : 24 October 2002 PARTIES : Australian Guarantee Corporation Limited - Plaintiff Agapei Pty Limited (Receivers & Managers Appointed) - Defendant JUDGMENT OF : Barrett J Mr D A C Robertson - Plaintiff COUNSEL : Mr M Ryckmans, Solicitor - Defendant Mr D Butler, Solicitor - Supporting Creditor (Citibank) Mr A Karakis, Solicitor - Supporting Creditor (DCT) Henry Davis York - Plaintiff SOLICITORS : Abbott Tout - Liquidators Deacons - Citibank Limited, Supporting Creditor The ATO Solicitor - Deputy Commissioner of Taxation, Supporting Creditor CATCHWORDS : CORPORATIONS - winding up - voluntary administrators appointed when application for winding up in insolvency pending - whether application must be adjourned LEGISLATION CITED : Corporations Act 2001 (Cth) Creevey v Deputy Commissioner of Taxation - (1996) 19 ACSR 456 CASES CITED : Deputy Commissioner of Taxation v Yates Security Services Pty Ltd (1997) 26 ACSR 629 Waste Recycling and Processing Service of New South Wales v Local Government Recycling Co-operative Ltd (199) 32 ACSR 194 DECISION : Adjournment refused; winding up order made - 8 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION BARRETT J THURSDAY 24 OCTOBER 2002 4876/01 - AGC LTD v AGAPEI PTY LIMITED JUDGMENT 1 By originating process filed on 4 October 2001, the plaintiff, a creditor of the defendant Agapei Pty Limited, seeks an order that the defendant be wound up in insolvency under the Corporations Act 2001 (Cth). The application is based on failure to comply with a statutory demand and is supported by two of the defendant's three other creditors. 2 The defendant today seeks an adjournment of the hearing of the application. There have been several earlier adjournments and, indeed, the effective life of the winding up application has been extended under s.459R to accommodate them. 3 The present application is based on s.440A(2) by which the court is directed to adjourn the hearing of a winding up application if two conditions are satisfied: first, that the company is under administration pursuant to Part 5.3A; and, second, that the court is satisfied that it is in the interests of the company's creditors for the company to continue under administration rather than be wound up. 4 The first condition is satisfied in this case by reason of the fact that, on 22 October 2002, Mr Tayeh and Mr de Vries were appointed joint voluntary administrators of the company. The court must therefore deal with the second element of s.440A(2) by deciding whether it is satisfied that it is in the interests of the company's creditors for the company to continue in administration rather than be wound up. 5 The nature of the court's task in this respect is explained in a number of decided cases, an authoritative statement of principle being that of the Queensland Court of Appeal in Creevey v Deputy Commissioner of Taxation (1996) 19 ACSR 456: "The question of whether an administration should continue, rather than that there be a winding up, is obviously closely related to the further question of whether the creditors could hope to get more by way of payment of their debts from one form of process or administration than from the other. In order to satisfy the court of the matter referred to in s 440A(2) of the Corporations Law, one would expect that there would have to be some persuasive evidence to enable it to be seen that there were assets which, if realised under one form of administration rather than the other, would produce a larger dividend, or at least an accelerated dividend for the creditors." 6 On the basis of that statement, the court must see persuasive evidence that continuation of the administration will, from the creditors' perspective, be preferable to winding up because of, in effect, greater returns or more speedy returns for creditors. 7 The administrators have, of course, been in office for only two days and understandably have not been able to come fully to grips with the circumstances of the company. They have, however, had discussions with its sole director and major shareholder, Dr Alicia Maneghetti, and have been provided with certain books and records. They have ascertained that the company does not trade and that its major asset is real property at 32-34 Ware Street, Fairfield. 8 Mr Tayeh's affidavit filed today goes on to say, reporting what he has been told by Dr Maneghetti, that the company has negotiated the sale of the Fairfield property to a company called Vida Australia Pty Limited for $3 million. Dr Maneghetti has told him that contracts are to be exchanged and simultaneously completed early next week, that is to say, the week commencing Monday 28 October. No form of contract is in evidence nor is it clear that any form of contract has been prepared. As reported by Dr Meneghetti to Mr Tayeh, however, the terms of the proposed contract are such that the purchaser is to pay $700,000 out of the total purchase price of $3 million on completion, with the balance of $2.3 million being paid within six weeks after completion. 9 Mr Tayeh has been shown loan documentation relating to an advance of $700,000 to be made by Hocana Pty Limited to the purchaser Vida Australia to be secured, it is said, by a first ranking mortgage over the property given by Vida Australia upon its taking title from the defendant company on completion of the contract. Mr Tayeh has also been provided by Dr Meneghetti with a copy of a loan approval that Vida Australia has received from Perpetual Investments for $4.46 million to which it is said Vida Australia will resort to obtain the balance of $2.3 million payable within six weeks after completion. 10 The loan approval letter from Perpetual Investments is in evidence, although, it appears, in part only. Annexure D to Mr Tayeh's affidavit consists of four pages, the first of which is on the letterhead of Perpetual Investments. The second page is numbered 2, the third page is numbered 5 and the fourth page is numbered 7, so that numbered pages 3, 4 and 6 are missing. One may infer from what appears on the four pages that there is to be registered first mortgage security for the loan by Perpetual Investments to Vida Australia, in that the proposed loan amount on the first page refers to a sum of $4.466 million or a maximum of 66.66 per cent of valuation or, if the "security property" has been purchased, 66.66 per cent of the purchase price, whichever is the less. There is also a reference on the first page to Vida Australia as the mortgagor in respect of "Security A", "Security B" and "Security C". At the bottom of the second page there is a sub-heading "Security" followed by the words "Registered first mortgage over" and a sub-heading "Security A". The page then ends and there is no page 3, so that one cannot see what "Security A" (and presumably "Security B" and "Security C") actually are. Whether the property of the defendant company that Vida Australia is supposedly to buy is one of the securities is not disclosed but, with a first mortgage to Hocana Pty Limited in existence, the security available to be given to Perpetual Investments over that property would presumably be a second mortgage only, which would not sit happily with the words against the sub-heading "Security" on page 2 of the Perpetual Investments letter, those words being, as I have said, "Registered first mortgage over". 11 In short, the financial viability of the foreshadowed purchase by Vida Australia has not been shown and the documents in evidence that attempt to show it seem to me to raise as many questions as they answer. 12 I turn now to other aspects of the evidence concerning the property at 32-34 Ware Street, Fairfield. An affidavit of the solicitor for the plaintiff sworn on 2 April 2002 has annexed to it what purports to be the front page of a contract for sale of the property. The vendor is shown as the defendant company Agapei Pty Limited and the purchase as Vida Australia Pty Limited. The first page appears to bear signatures of persons purporting to be directors of the respective vendor and purchaser. It shows a purchase price of $8 million. That, of course, contrasts sharply with the $3 million referred to in the affidavit of Mr Tayeh as the proposed price applicable to the proposed arrangement represented by Dr Managhetti as expected to come to fruition next week. 13 The contract apparently showing a purchase price of $8 million was entered into as recently as March of this year. The evidence does not disclose what happened in relation to that contract to enable the defendant company now to contemplate selling the same property to the same purchaser for a substantially reduced price. Among the possibilities are the possibility that the purchaser defaulted and the vendor rescinded and the possibility that the parties by mutual agreement terminated and abandoned their contract. The court cannot speculate on why the sale at $8 million did not eventuate and why there should now be contemplation of a sale between the same parties at less than half that price. 14 Another element of the evidence that should be mentioned is the apparent former connection between Dr Meneghetti, the defendant company's sole director and major shareholder, and the putative purchaser, Vida Australia. The company search which is Exhibit A shows that Alicia Meneghetti of 13 Terrigal Place, Engadine, born on 29 January 1949, was a director of Vida Australia from 26 July 2000 to 30 January 2002, and that Daniel Meneghetti of 19 Terrigal Place, Engadine, born on 18 March 1946, was a secretary of the company from 26 July 2000 to 15 May 2001. Both are shown as having been born in the same overseas city. There is not, on the evidence, any existing connection between Dr Meneghetti and the purchaser company, but there is clear evidence of a recent connection by way of directorship - a connection that, on the face of the search and to the extent that it involved formal directorship, came to an end before the apparent contract for sale at $8 million was entered into. 15 The submission made on behalf of the administrators is that they should be allowed more time in which to pursue the transaction expected to come to fruition next week. The logic of that, however, is not at all clear to me. If, as is suggested, Vida Australia Pty Limited is prepared to pay $3 million for this property with the full amount being paid within six weeks from next week, I cannot see how the prospects of an advantageous sale being achieved are enhanced by the process being undertaken by administrators rather than by a liquidator. It has been shown that the purchaser company has a particular interest in the property because it holds options to purchase adjoining properties. One infers that the subject property therefore has a special value to it in that that property, combined with the adjoining properties, will no doubt present opportunities and advantageous possibilities that could not be achieved through ownership of the subject property alone. Vida Australia is therefore, in a sense, a captive buyer from the perspective of whomever it is that has the capacity at any time to sell this particular property, whether it be administrators or a liquidator. As I say, I cannot see that conduct of negotiations by an administrator rather than a liquidator would present any prospect of better returns for creditors through a more advantageous sale. If Vida Australia if it is a genuine arms length purchaser, motivated by the commercial considerations relevant to its position in relation to the adjoining properties, it will be a willing and even anxious buyer regardless of which official of the defendant company activates it as vendor. 16 The final matter is one that has a particular significance, given the length of time for which the summons for winding-up has been on foot. It was, as I said, filed on 4 October 2001. It follows that if a winding-up order is made on the basis of that originating process, the relation back period for the purposes of preferences and uncommercial transactions will begin on 4 October 2001, whereas if there is in due course the form of creditors voluntarily winding up that follows on from Part 5.3A administration by reference to the administration which began two days ago, the relation back period will begin on 22 October 2002. 17 There is nothing specific in the evidence to suggest that there will be an identifiable advantage for creditors if the longer rather than the shorter relation back period comes to apply, but the possibility of that seems to me to be a live one, particularly in the light of the unexplained circumstances in relation to contract for sale at $8 million and the former connection of Dr Menghetti with Vida Australia. That raises at least a possibility of a mentality within or in relation to this company that could be relevant to the various matters in relation to which a relation back period has pertinence. A consideration of this kind was seen by Santow J to be relevant to a s.440A(2) decision in Deputy Commissioner of Taxation v Yates Security Services Pty Limited (1997) 26 ACSR 629. 18 Returning then to the question the court is required by s.440A(2) to answer, I must say that I consider the possibilities based on a sale next week to Vida Australia to be, in the words of Santow J in Waste Recycling and Processing Service of New South Wales v Local Government Recycling Co-operative Ltd (1999) 32 ACSR 194, "mere optimistic speculation" when viewed in the light of the evidence about the history of this property and apparent sales of it, remembering also the established past connection between the principal of the defendant company and the apparent purchaser company. Above all, I am influenced by the reality that, if Vida Australia is a genuine purchaser with the particular incentive to buy that has been explained, it will buy from whomever is able to sell. 19 I am not satisfied that it is in the interests of the company's creditors for the company to continue under administration rather than to be wound up. I therefore decline to grant any further adjournment of the hearing to the winding-up application. [Counsel addressed further] 20 The plaintiff now seeks the making of a winding up order. No opposition is offered by the defendant. The defendant does, however, ask that Mr de Vries, one of the joint administrators appointed on 22 October, be appointed liquidator. The plaintiff seeks the appointment of Mr Prentice. The defendant notes that Mr Tayeh, one of Mr de Vries' partners, has already spent some time familiarising himself with the affairs of the company as is testified by his affidavit read on the adjournment application. Against that, the plaintiff expresses some concern about Mr Tayeh's willingness to pursue the sale proposal involving Vida Australia, given the unexplained aspects which seem to call in question its viability. 21 All things considered, I am of the view that it is preferable that the liquidator be a person who can bring a fresh mind to all of these matters. 22 The orders of the court are as follows: 1. That Agapei Pty Limited be wound up in insolvency under the Corporations Act 2001 (Cth). 2. That Maxwell William Prentice of Level 15, 25 Bligh Street, Sydney, an official liquidator, to be appointed as the liquidator of Agapei Pty Limited. 3. That costs of this application be paid out of the assets of Agapei Pty Limited. 23 I direct that these orders may be taken out forthwith. ********** Last Modified: 11/06/2002 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.