Reported Decision : 53 ACSR 529 New South Wales Supreme Court CITATION : Nicou v Ngan [2005] NSWSC 446 HEARING DATE(S) : 2/5/05 & 4/5/05 JUDGMENT DATE : 4 May 2005 JURISDICTION : Equity JUDGMENT OF : Campbell J DECISION : Adjournment refused. Liquidator to pay costs of proceedings following resignation, with question of his right of indemnity for costs reserved. Replacement liquidator with no prior connection with either party appointed. CATCHWORDS : CORPORATIONS - winding up - application for removal of liquidator - application for adjournment - costs of proceedings when liquidator tenders resignation - principles for appointing replacement liquidator LEGISLATION CITED : Corporations Act 2001 (Cth) CASES CITED : Hypec Electronics Pty Ltd (in liquidation) v Mead; BL & GY International v Hypec Electronics Pty Ltd (in liquidation) [2004] NSWSC 731; (2004) 61 NSWLR 169 Maria Nicou - First Plaintiff Arun Sunil Robert Lobo - Second Plaintiff PARTIES : Peter Ngan - First Defendant Heritage Fine Wines Pty Ltd (in liquidation) - Second Defendant FILE NUMBER(S) : SC 2343/05 M R Aldridge SC - Plaintiffs COUNSEL : R Forster SC - Defendants MBP Legal - Plaintiffs SOLICITORS : NRG Legal - Defendants LOWER COURT JURISDICTION : IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST CAMPBELL J WEDNESDAY 4 MAY 2005 2343/05 MARIA NICOU & ANOR v PETER NGAN & ANOR JUDGMENT – Ex Tempore 1 HIS HONOUR: On Monday of this week, in the Corporations List, I began to hear the present application, which is an application to remove a liquidator. The evidence was completed on Monday, but there was insufficient time for addresses, so the application was stood over to noon today. 2 At the commencement of the hearing today, Mr Forster SC, for the liquidator, made an application for leave to re-open, and a short adjournment. I permitted evidence to be filed and read relating to the application for adjournment, and did not at that stage rule on whether it could be used for any other purpose. 3 In very broad terms, the basis upon which the removal of the liquidator is sought is that he is alleged to be in a position of conflict, because he is the holder of a charge given by the company over its assets. The charge is one which was taken, some years ago, by a bank. In late March 2005 the bank threatened to appoint a receiver, whereupon the liquidator (who was then an administrator of the company) acquired the charge. 4 The evidence which was filed today shows that the liquidator has entered into negotiations to sell the charge. The possible purchaser of that charge is someone who is interested in buying the business conducted by the company, of which the first defendant is the liquidator. 5 The negotiations for the sale of the charge are still at a rudimentary stage. The latest offer which is before the Court is one which shows it was faxed at 11.58 am today. That states that the intending purchaser of the charge proposes to acquire it for a consideration equal to an amount of the debt, subject to due diligence, and satisfactory legal documentation. The prospective purchaser says that in the course of undertaking the due diligence he would seek to have it extend to his wider interests in purchasing the business. Mr Forster SC tells me, from the Bar table, that the terms put forward in that letter are not ones that would be acceptable to the liquidator. 6 The state of the negotiations is such that, understandably, Mr Forster SC is not able to give me any assurance that even if some particular date next week were to become available in the Court's calendar, the transaction would have been consummated by that stage. 7 The liquidation is one which relates to a company which carried on a business of selling superior quality wines to people who purchased it predominantly as an investment. At least frequently, the company would store that wine on behalf of the investors. It appears that there is some uncertainty about exactly what wine is held for what investors, and what wine is the company's own property. 8 There are various other proceedings on foot in the Court, in which investors seek to obtain access to what they say is their own wine. There is a notice of motion seeking such an order, which has been put on by some 36 different people who claim to be owners of wine stored by the company, which is returnable next Friday. 9 Mr Aldridge SC appears, for two people seeking the removal of the liquidator, who are creditors through being former employees of the company who have not been paid their entitlements. He says that even if the charge were to be sold, the application would still be pursued to remove the liquidator. He says that there have been past breaches of the Corporations Act 2001 (Cth), and of the appearance of impartiality on the part of the liquidator, which would justify that course, even if the charge were to be sold. 10 As well, he says that the practical effect of the liquidator continuing to conduct the liquidation is that his fees will obtain priority over amounts owing to unpaid employees, whereas, if the charge had been enforced by the bank before the liquidator acquired it, there would have been a practical necessity on the charge holder to pay the employees out before it could pay itself. 11 The liquidator says that if he were to be permitted to remain as liquidator, there would be a saving of work which he has carried out. He points out that there is no challenge in the present application to his bona fides in acquiring the charge, and submits that overall it would be in the interests of the company for him to be permitted to remain. He submits that, by being given the opportunity to sell the charge, he would be able to remove a criticism which is being made of him - and, he says, made unjustifiably - and would then be free to advance the administration. 12 In my view, it is not appropriate to grant the adjournment. It is not clear when the sale of the charge will occur, if ever, or on what terms. The application is one which is brought in the middle of an application which, had it not been for the state of the Corporations List last Monday, would have been decided by now. As well, the situation of the creditors of the company, and of the persons for whom the company is acting as bailee of the wine, should be resolved as soon as possible. 13 The basis upon which the criticism of the liquidator's conduct was made, and the basis on which his removal was sought, was identified quite clearly well before Monday of this week. There is, as well, an important public interest in ensuring that liquidations are continued in an appropriate fashion, regardless of the interests of the particular creditors involved in a particular liquidation, or of the interests of people who are in the position of the bailors of wine to the company in the present case. 14 I decline the adjournment. ********** 15 Before lunch I rejected an application by the defendant for an adjournment of the proceedings. On resumption of court after lunch, Mr Forster SC, announced that the defendant wished to resign as liquidator. He made clear that that did not amount to a concession that he should be removed, or that he had been motivated by anything other than good faith. Mr Forster SC stated that the defendant's reason for resignation was based on his recognition that there appeared to be opposition to him from various of the plaintiffs and some other creditors and that he did not wish there to be any appearance of anything other than impartiality. 16 Under those circumstances I think that it is appropriate that he be permitted to resign, although I will not make an order that he be permitted to resign, until a replacement liquidator is able to be appointed. 17 The plaintiffs, who are two of the creditors of the company, seek an order that the liquidator pay their costs of the proceedings, save insofar as there have been previous costs orders made. They submit that, as well, the proceedings should be stood over to enable the question of the liquidator's entitlement to indemnity from the assets of the company for his own costs and for any costs he might be ordered to pay to the plaintiff to be investigated, with input from whoever might be appointed as liquidator. 18 Mr Forster SC submits that there should be no order that the liquidator pay the costs of the plaintiffs. He submits that the liquidator's motives were proper in acquiring the charge that led to the proceedings being brought. He submits that the liquidator was not liable to be removed and was not in a position of conflict. That is a submission upon which it is not appropriate for me to rule, in circumstances where it has not been fully argued. As well, that is a question which might come up at some stage in the future and I would not wish to prejudge any such future situation. 19 Mr Forster SC submitted that the liquidator's resistance to the application by the employees was justified, because the liquidator had done considerable work in the liquidation, and would be put at risk if he were to resign. Mr Forster SC says that the liquidator has co-operated fully with the plaintiffs and the court in bringing the matter on for a quick hearing. That last submission is one which, even at this stage, I would accept. 20 The fact remains that the defendant has had a change of heart about whether he should oppose the orders which are sought. His having had a change of heart at this stage, rather than at the very beginning of the proceedings, has resulted in the plaintiffs having to incur costs. In those circumstances it is appropriate that the defendant be ordered to pay the costs of the plaintiffs of the proceedings, save insofar as there have been other costs awarded already in the proceedings. 21 The question of whether there should be an indemnity from the assets of the company for those costs is one which Mr Forster SC invites me to rule on immediately, by ruling that both the plaintiffs' costs and defendants' costs should be paid out of the assets of the company. The question is a reasonably complex one. Some examination of the principles involved is contained in the judgments in Hypec Electronics Pty Ltd (in liquidation) v Mead; BL & GY International v Hypec Electronics Pty Ltd (in liquidation) [2004] NSWSC 731; (2004) 61 NSWLR 169 and Mead v Watson as Liquidator for Hypec Electronics [2005] NSWCA 133. 22 It is in my view, a more complex question than could be appropriately dealt with in a summary fashion at the present time. In these circumstances, I shall stand over any question of whether the defendant should be entitled to indemnity from the company either for his own costs, or for the costs which he has been ordered to pay the plaintiffs. 23 The appropriate way of dealing with that question is, I think, for me to retain control of the matter for the purpose of deciding that question. It is only a costs question and, there is no particular urgency in having it determined, although it is better to have it determined while it is still comparatively fresh in the mind of the legal representatives and myself. ********** 24 There have been a variety of consents of liquidators tendered to me. The consents of Mr Andrew Wily and Mr Hugh Wily have been tendered by the plaintiffs. Mr Andrew Wily has had some involvement in the matter before, through holding a proxy for the first plaintiff at the first meeting of creditors, and through having an employee of his hold a proxy for the first plaintiff at the second meeting of the creditors, at which that employee also held a proxy for another creditor, Mr Reid. 25 I think that in these circumstances, it is quite important that anyone who is appointed by the Court is someone who is not seen to have any prior involvement. 26 Mr Crouch is another liquidator who has been nominated. His consent was available when the matter started on Monday. Today the consent has been tendered by the defendant of Mr Gibbins of Ernst & Young, and a creditor has appeared this afternoon tendering a consent of Mr Elliott of Hall Chadwick. 27 Section 532(9) Corporations Act 2001 (Cth) requires that a person only be appointed as a liquidator if he has consented in writing. The usual practice in the Court is that it is the person who seeks the appointment of a liquidator who tenders such a consent. Unless reason is shown why a particular liquidator, nominated by that person, is not suitable, the Court will appoint the person so nominated. In the circumstances of the present case, I would regard the prior involvement of Mr Andrew Wily, and what appears from the consent which has been tendered to be some connection in practice between him and Mr Hugh Wily, as being a sufficient reason for not appointing either of those gentlemen. However, Mr Crouch is, it seems, of a firm which is comparable in size to Mr Ngan's. Being a registered liquidator, prima facie there is no reason why he is not in a fit position to do the job. I appoint Nicholas James David Crouch as the liquidator of Heritage Fine Wines Pty Ltd (in liquidation). I accept the resignation of Peter Ngan as liquidator of that company. 28 I grant either party liberty to apply. These orders may 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.