Reported Decision : 48 ACSR 350 New South Wales Supreme Court CITATION : ASIC v ACN 102 556 098 Pty Ltd [2003] NSWSC 1253 HEARING DATE(S) : 11/12/03 JUDGMENT DATE : 23 December 2003 JURISDICTION: Equity Division Corporations List JUDGMENT OF : Barrett J DECISION : Order for appointment of provisional liquidator. No undertaking as to damages required. CATCHWORDS : CORPORATIONS - winding up - application by ASIC on grounds of insolvency - whether ASIC should be required to give undertaking as to damages when seeking appointment of provisional liquidator LEGISLATION CITED : Corporations Act 2001 (Cth), ss.459A, 459B Australian Competition and Consumer Commission v Giraffe World Australia Pty Ltd (1998) 84 FCR 512 CASES CITED : Commonwealth v John Fairfax & Sons Ltd (1980) 147 CLR 39 F Hoffmann-La Roche & Co AG v Secretary of State for Trade and Industry [1975] AC 295 Lubavitch Mazal Pty Ltd v Yeshiva Properities No 1 Pty Ltd (2003) 47 ACSR 197 PARTIES : Australian Securities and Investments Commission - Plaintiff ACN 102 556 098 Pty Ltd - Defendant FILE NUMBER(S) : SC 6218/03 COUNSEL : Mr D R Stack - Plaintiff SOLICITORS : Michael Burnett, Solicitor for ASIC - Plaintiff IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BARRETT J TUESDAY, 23 DECEMBER 2003 6218/03 – AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION v ACN 102 556 098 PTY LIMITED REASONS FOR JUDGMENT 1 By an interlocutory process filed in court on 11 December 2003, the Australian Securities and Investments Commission applied ex parte for an order that a liquidator be appointed provisionally to the defendant company, ACN 102 556 098 Pty Ltd (formerly Budget Lifestyle Homes Pty Ltd) and for certain ancillary relief. I made the orders sought and indicated that I would later deliver brief reasons, which I now do. 2 The application has a somewhat unusual aspect to it in that ASIC's originating process seeking a winding up order is based mainly on the grounds of insolvency. The originating process refers to ss.459A and 459B (plus s.461(1)(k)). It was explained by Mr Stack of counsel, who appeared for ASIC, that the winding up application and the interlocutory application for the appointment of a provisional liquidator resulted from the work of ASIC's Insolvency Coordination Unit which aims to instil in company directors a greater awareness of the need to monitor solvency and, if necessary, to take action to appoint a voluntary administrator. The particular aspect of the Unit's activities involved in this application is one that sees direct steps taken where circumstances of insolvency are seen by ASIC to warrant such steps. 3 The evidence showed that the company was in all likelihood insolvent and, more immediately, that its assets were in jeopardy, in that the residue of funds after sale of the business seemed likely to be in the process of being diverted to the sole director and shareholder whose whereabouts could not be determined. In those circumstances, an order for the appointment of a provisional liquidator was warranted. 4 The application by ASIC was made ex parte, there being clear indications that the sole controller would not easily be found for the purposes of service and that it was necessary for the remaining assets to be secured without delay. I asked Mr Stack whether ASIC proffered to the court any undertaking as to damages. He said that it did not and submitted that the order sought should nevertheless be made. I acceded to the application on that basis. It is appropriate that I say why I did so. 5 There is, of course, no inflexible rule that an applicant for the appointment of a provisional liquidator should be required to give an undertaking as to damages, although the applicant's failure to offer the undertaking may, in an ordinary case, tell against the making of the order: see the recent discussion by Austin J in Lubavitch Mazal Pty Ltd v Yeshiva Properties No 1 Pty Ltd (2003) 47 ACSR 197 at 218. It was submitted that these general principles should not be applied when ASIC is the applicant and that an undertaking should not be required. 6 Mr Stack submitted that ASIC, in seeking the appointment of a provisional liquidator, was acting not with a view to vindicating some private right but in the discharge of a public duty. He referred to the decision of the House of Lords in F. Hoffmann – La Roche & Co AG v Secretary of State for Trade and Industry [1975] AC 295 where it was acknowledged that, when the Crown seeks an interim injunction to enforce what is prima facie the law of the land, as opposed to private rights, the person against whom the injunction is sought would have to show some compelling reason why an undertaking as to damages should be required. 7 The susceptibility of the Crown to the general requirement that an undertaking as to damages be given as the normal price of an interlocutory injunction to protect a proprietary or private right was referred to by Mason J in Commonwealth v John Fairfax & Sons Ltd (1980) 147 CLR 39. And, as is shown by the decision of Lindgren J in Australian Competition and Consumer Commission v Giraffe World Australia Pty Ltd (1998) 84 FCR 512, an undertaking may be required where a public authority acts in a representative capacity to enforce private rights rather than performing a public duty as such. In that case, the ACCC sued both for itself and as a representative party under Part IVA of the Federal Court of Australia Act 1976 (Cth). 8 In the present case, it might be said that ASIC, in seeking an order for winding up on the grounds of insolvency and, as an interim measure, an order for the appointment of a provisional liquidator, acted in support of the rights of creditors of the company concerned. For my own part, I would regard such a characterisation of ASIC's role as too narrow. ASIC did not act in any representative capacity. Section 459A identifies the persons who are competent applicants for an order for winding up on the grounds of insolvency. A creditor and a contributory are two such persons. ASIC itself is, quite independently, another. ASIC may also proceed under s.459B to seek an order for winding up in insolvency if it has initiated an application of a kind there mentioned. The Act thus recognises ASIC as an actor in its own right. When ASIC asserts the standing it is given by each of s.459A and s.459B, it does not act as a representative of any private interest and does not seek to enforce, directly or indirectly, the right of any creditor. It acts in aid of the community's interest in ensuring that limited liability companies do not remain operative when the capacity to pay their debts in full has been compromised. 9 In these circumstances, I was satisfied that, in making application for the appointment of a provisional liquidator in this case, ASIC was performing a public function. That function was of such a kind that ASIC's failure to proffer an undertaking as to damages was not something that should have worked to its disadvantage upon the determination of the application. ********** Last Modified: 12/23/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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