New South Wales Supreme Court CITATION : Re Bettertiles Projects Pty Ltd [2005] NSWSC 717 HEARING DATE(S) : 06/06/05 JUDGMENT DATE : 21 July 2005 Equity Division JURISDICTION : Corporations List JUDGMENT OF : Young CJ in Eq DECISION : Application dismissed with costs. CATCHWORDS : CORPORATIONS [278]- Winding up- Removal of liquidator- Animosity between petitioning creditor and directors- Liquidator alleged to be too closely aligned with interests of petitioning creditor- Factors involved- Directors not co-operating- No other interests involved- Difficult to remove liquidator where well acquainted with business and liquidation almost complete. LEGISLATION CITED : Corporations Act 2001 (Cth), ss 473. 530, 596 Advance Housing Pty Ltd v Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230 BL & GY International Co Ltd v Hypec Electronics Pty Ltd [2004] NSWSC 1119 CASES CITED : City & Suburban Pty Ltd v Smith (1998) 28 ACSR 328 Re Allebart Pty Ltd & The Companies Act [1971] 1 NSWLR 24 Re Biposo Pty Ltd (1995) 13 ACLC 1271 Bettertiles Pty Ltd (Applicant) PARTIES : Bettertiles Projects Pty Ltd (1st Respondent) Andrew Hugh Jenner Wily (2nd Respondent/Liquidator) FILE NUMBER(S) : SC 3440/02 R N Gye (Applicant) COUNSEL : J K Chippindall (2nd Respondent/Liquidator) Mavrakis & Associates (Applicant) SOLICITORS : M D Nikolaidis & Co (2nd Respondent/Liquidator) LOWER COURT JURISDICTION : IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST YOUNG CJ in EQ Thursday 21 July 2005 3440/02 – RE BETTERTILES PROJECTS PTY LTD JUDGMENT 1 HIS HONOUR: This is an application by Bettertiles Pty Ltd ("Bettertiles") for an order that Andrew Hugh Jenner Wily be removed as liquidator of Bettertiles Projects Pty Ltd ("Projects") and replaced by Mr Martin Green. 2 Projects was wound up by Acting Master Berecry on 2 August 2002. This order followed non-compliance with a statutory demand served on Projects on 21 May 2002 relying on a judgment debt obtained by Granitek (Aust) Pty Ltd ("Granitek") for $867,656.07 (including interest). The application for winding up was filed on 3 July 2002. 3 The judgment was obtained after a hearing before a referee of a building dispute over tiling to the Sydney Casino. The referee's report was adopted by a judge after opportunity had been given to dispute it. 4 After the winding up order was made, Mr Wily and his staff pursued the Bettertiles Group, its directors and its accountant Mr Joe Bart and that included examining those persons under s 596 of the Corporations Act 2001 (Cth) over a period of seven days. 5 In 2002, Mr C C Hagan, solicitor, commenced to act for the Bettertiles Group. Mr Hagan formed the view that the referee's report, which had led to the judgment Granitek obtained and on which it had based its statutory demand, was defective. The alleged defects included a claim that the referee made serious arithmetical errors in her calculations and overlooked a vital matter in that she needed to rule on Projects' cross claim which she failed to do. He requested the liquidator to take action to remedy this problem. 6 The liquidator replied that he had no funds to do so, but that should the Bettertiles Group fund him to the extent of $15,000 he would obtain counsel's advice. The evidence shows that that $15,000 was to obtain senior counsel's advice, but was made up of $5,000 for senior counsel, $3,000 for junior counsel, $5,000 for the solicitor and $2,000 for the liquidator. The liquidator noted too that the Supreme Court had adopted the referee's report after Projects' counsel had virtually said that he could say nothing in opposition. 7 The $15,000 was never produced. 8 Bettertiles says that the liquidator has become too close to the principal of Granitek, Mr Kyri Kyriakouleas. (This gentleman was referred to by everyone in the evidence as "Kyri" and without meaning any disrespect, I will do the same). 9 There is no doubt that Kyri, or one of his companies, has put the liquidator into funds to enable him to pursue the directors of Bettertiles. According to PX141, between 11 September 2002 and 5 May 2005, the liquidator or his solicitors billed Kyri for $546,048.60 which was paid. Kyri had also indemnified the liquidator against the possibility of costs orders being made against him. 10 The riposte of Mr Hagan to the demand for $15,000 was that as Kyri had funded everything else he could fund this opinion also. Needless to say, this view was not accepted by the liquidator. 11 The Bettertiles group of companies is owned by the Gasparre family. The paterfamilias is Leonardo (or Leo) Gasparre. There are three companies in the Group; Bettertiles Pty Ltd, Projects and Bettertiles Contracting Pty Ltd ("Contracting"). The 1000 shares in Projects were held as at the commencement of the winding up by Bettertiles as to one share and 999 shares by Leo Gasparre. Its directors were Leonardo and his three children Mariliana, Patrick and Anthony. 12 The shares in Contracting are held by Anthony and Mariliana Gasparre. Anthony is the sole director. The liquidator says that Contracting was formed to assume Projects' business. 13 The only persons who have proved in Projects' liquidation are Granitek and Bettertiles. As to Bettertiles' claim, Mr Sampson, the liquidator's managing clerk, has indicated that unless further material is provided he is minded to reject the claim. 14 It is abundantly clear that there is a tremendous amount of antagonism between Bettertiles and Granitek. Clearly the members of the Gasparre family feel that the referee's incompetence has put an end to much of their family's business which has been their pride and joy for decades. Granitek, they believe, made unjustifiable claims against them of which the referee, by her faulty adjudication, allowed through and Granitek continues to press its unjustifiable claims. On the other hand, Granitek feels so greatly aggrieved by Bettertiles conduct after obtaining the referee's decision and the imprimatur of the Court thereon following a virtual concession that there was nothing that could be said against the referee's report, that it has invested almost $550,000 in pursuing its debt of $867,000. It is also obviously upset by what it sees as conduct by the Bettertiles Group to remove work and assets into Contracting. 15 In this background the present application is brought under s 473(1) of the Corporations Act which empowers the Court to remove a liquidator. I heard the application on 6 June 2005, Mr R N Gye of counsel appearing for the applicant and Mr J K Chippindall of counsel appearing for the second respondent. Both counsel provided me with very helpful written submissions. 16 The basic principles on which the Court acts in this sort of application are reasonably clear. 17 In Re Allebart Pty Ltd & The Companies Act [1971] 1 NSWLR 24, L W Street J said that a liquidator might be removed if the situation developed where it might reasonably be perceived that the liquidator had yielded up some degree of initiative to the petitioning creditor and which presented some appearance of mere automatic acquiescence by the liquidator in the wishes of the petitioning creditor. However, his Honour considered it quite proper for the liquidator to accept funding from the petitioning creditor. 18 In Re Biposo Pty Ltd (1995) 13 ACLC 1271, I removed a liquidator on the ground that a reasonable bystander would consider that the liquidators were too close to a creditor and that their impartiality was impaired. 19 In BL & GY International Co Ltd v Hypec Electronics Pty Ltd [2004] NSWSC 1119, Gzell J removed a liquidator who, on all the evidence, showed a clear tendency to prefer certain interests. Similarly, see City & Suburban Pty Ltd v Smith (1998) 28 ACSR 328. 20 The applicant says that there are eight good reasons why the liquidator should be removed, which in summary, are as follows: (1) The liquidator has accepted a large amount of funding from Kyri; (2) The liquidator has preferred Granitek to Bettertiles in that he has admitted the former's proof, but not the latter's; (3) The liquidator has been over-zealous in pursuing the directors; (4) The liquidator is too close to Kyri; (5) The liquidator has been able to charge exorbitant fees because Kyri has paid them and the Bettertiles Group have not even been able to make their voice heard; (6) The liquidator has failed to take proper legal advice on the chances of upsetting Kyri's debt; (7) The liquidator has failed to give any information to Bettertiles; (8) The liquidator has not approached the Court for directions in matters where that would be appropriate. 21 There is some factual basis for each of the complaints. 22 As to (1), there is no doubt at all that Kyri has funded, and funded generously, the liquidator's activities. 23 As to (2), it is true that the Bettertiles proof has not been admitted. The liquidator says that this is because it is unsupported by any substantial facts. There has been no proof put in, it would seem, from Granitek either. However, the liquidator justifies this distinction by saying that Granitek was the petitioning creditor and that he is proceeding to obtain a proper proof of debt. 24 As to (3), there is no doubt at all that the liquidator has been zealous in pursuing the directors. He obtained a warrant to obtain documents when the directors would not hand them over to him, he examined them for, I think, seven days, because he says the directors were reluctant to give him any information and he has filed misfeasance proceedings against the directors. 25 As to (4), it is clear that Kyri requires the liquidator's solicitors to keep him up to date as to what is happening. Mr Hagan in his affidavit, however, says that the following conversation took place between himself and Mr Nikolaidis, the solicitor for the liquidator, on 20 August 2004: Nikolaidis: "After what we've heard from Joe Bart we're going to need documents relating to the RPA job." Hagan: "I will speak to my client about it." Nikolaidis: "Well you'd better because Kyri wants to see those documents on Monday. He is putting a lot of pressure on me – he is ringing me every day." 26 Whilst this conversation does tend to show undue pressure, of itself it is not sufficient to do so. 27 As to (5), there is no doubt that there are very substantial fees that have been paid to the liquidator. There is also no doubt that because the liquidator refused to admit Bettertiles' proof of debt the only person who voted on the liquidator's remuneration was Granitek. 28 As to (6), it is true, as I have said, that the liquidator required $15,000 before he would get an opinion as to the claim made by Mr Hagan that the referee incompetently made her assessment and failed to deal with the cross claim. It would seem to me, as a casual observer, that the fees which were sought were exorbitant. However, that is a minor matter compared with the other factors. 29 It is difficult to see how the referee's decision can be attacked at this stage. It was before the Commercial List Judge when she approved the report and gave the judgment and indeed, the material before me would tend to suggest the then counsel conceded that there was not much he could say in opposition. There has been no attempt to challenge the referee's assessment before the company went into liquidation, though there were opportunities to do so; rather, the Bettertiles Group appear to have restructured their business. I know they say they restructured it because Leonardo Gasparre was getting on in years and the sons wanted a fresh start with a new company but there is certainly material which goes the other way. 30 Furthermore, it would appear from reading the referee's report that she did come to the view that the cross claim should be dismissed, but she just did not formally dismiss it. 31 Accordingly, the liquidator could well have taken the view that unless he was funded (leaving the quantum to one side for the moment), he would not be justified in obtaining further advice. 32 Mr Hagan suggests that Kyri should have paid for this or the monies provided by Kyri could have been used but one cannot see any reason commercially or legally why this should be so. The Bettertiles people have not put forward any money at all to the liquidator to obtain even junior counsel's opinion. 33 As to (7), the liquidator has not given the Bettertiles people full information as to what is going on. He has justified that by saying that the essential dispute is between Granitek and Bettertiles and Bettertiles and its directors are being attacked by the liquidator and do not appear to the liquidator to be a creditor, so why should he give them information which might be used against the company. 34 As to (8), this is also true but again it does not appear that there is any matter upon which the Court could have given meaningful directions. 35 Mr Chippindall for the liquidator says that much of what the liquidator has done in pursuing the Gasparres has been because of their stubborn resistance. There are only very few instances of liquidators obtaining warrants under s 530C of the Corporations Act, but this was one of the rare cases where that was necessary. 36 Mr Chippindall rightly points out that the liquidator obtaining funding from a petitioning creditor or any other major creditor is not in itself a matter for criticism; see Re Allebart supra. 37 Mr Chippindall points out that this is a rare liquidation in which there is only one, or perhaps two creditors so that it is far closer to a fight between the petitioning creditor and the directors than might otherwise be the case. However, he puts that even taking this into account, the evidence does not show that the liquidator has become the creature of Granitek; indeed, the real situation is quite the contrary. He puts that Granitek has a major interest in the conduct of the winding up and has supported its major interest by financing the liquidator who is the only party to have such an interest. If that interest had not been shown, then there would be a success by the directors of the company by default. 38 Mr Chippindall reminded me that in Advance Housing Pty Ltd v Newcastle Classic Developments Pty Ltd (1994) 14 ACSR 230 at 233 Santow J adopted a passage that now appears in the 4th ed of McPherson, The Law of Company Liquidation at p 314: " … those who assert that the liquidator should be removed, are under a duty to establish at least a prima facie case that this is for the general advantage of the persons interested in the winding up, and the onus of proof will not be easy to discharge if the liquidator has become well acquainted with the business and affairs of the company, or the process of winding up has almost reached completion. In hearing applications for the removal of liquidators, courts will be cautious in situations where it appears that a person may be trying to avoid the consequences of some wrongdoing by attacking the liquidator and seeking her or his removal." 39 It may be that had there been a large number of creditors and the liquidator was as close to Kyri as he appears to be in the present case, that he may have been removed. However, every case must be looked at on the whole of its facts. The question must be asked whether the liquidation has been compromised because of the eight matters to which I have earlier referred to. In my view, it has not. The duty of the liquidator is to raise as much money as he possibly can for the creditors and he has pursued that course. He certainly pursued it with vigour, but that has partly been due to the stiff resistance he has met from the Bettertiles people. 40 Again, this liquidator has certainly become well acquainted with the business and affairs of the company and it would take a replacement considerable time at considerable expense to reach the same point. 41 Taking into account the eight matters raised against him, but balancing the matters just mentioned, my conclusion is that I should not remove the liquidator. 42 The interlocutory process is dismissed with costs. ******************** 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. 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