Hall & Anor as Liquidators of New Tel Ltd v Ledge Finance Ltd [2005] NSWSC 645

New South Wales Supreme Court

CITATION : Hall & Anor as Liquidators of New Tel Ltd v Ledge Finance Ltd [2005] NSWSC 645

HEARING DATE(S) : 27/06/05

JUDGMENT DATE : 4 July 2005

Equity Division JURISDICTION : Corporations List

JUDGMENT OF : Barrett J

DECISION : Interlocutory process dismissed with costs

CATCHWORDS : CORPORATIONS - winding up by the court - liquidator's claim for order under s.588FF that party to pre-liquidation transaction with the company pay money to the company - other party to transaction seeks leave to proceed with cross-claim seeking order declaring transaction void ab initio - whether cross-claim of any utility - whether leave to proceed with cross-claim should be granted

LEGISLATION CITED : Corporations Act 2001 (Cth), ss.471B, 588FA, 588FB, 588FC, 588FD, 588FE

CASES CITED : Webb Distributors (Aust) Pty Ltd v State of Victoria (1993) 179 CLR 15

Gregory Winfield Hall and Philip Patrick Carter as Liquidators of New Tel Limited - First Plaintiffs PARTIES : New Tel Limited (In Liquidation) - Second Plaintiff Ledge Finance Limited - Defendant

FILE NUMBER(S) : SC 6801/04

Mr D J Hammerschlag SC/Mr P.W. Flynn - Plaintiffs COUNSEL : Mr D.P. Robinson SC - Defendant

Blake Dawson Waldron - Plaintiffs SOLICITORS : Price Sierakowski by their agents: Neil Lawson & Co - Defendant

LOWER COURT JURISDICTION :

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

BARRETT J

MONDAY, 4 JULY 2005

6801/04 GREGORY WINFIELD HALL & ANOR AS LIQUIDATORS OF NEW TEL LIMITED & ANOR v LEDGE FINANCE LIMITED JUDGMENT 1 By interlocutory process filed on 4 June 2005, the defendant (Ledge Finance Limited) seeks leave under s.471B of the Corporations Act 2001 (Cth) to proceed with a cross-claim filed by it on 9 May 2005. To distinguish this from a separate and subsequently filed cross-claim, I shall refer to it as the "first cross-claim". 2 The proceedings themselves are proceedings in which the plaintiffs are named as New Tel Limited (second plaintiff) and Mr Hall as liquidator of that company (first plaintiff). By their statement of claim filed on 21 March 2005, both plaintiffs claim a declaration that two loans made by the defendant to the first plaintiff are unfair loans under s.588FD(1), an order that the two loans are voidable pursuant to s.588FE(2), an order pursuant to s.588FF(1)(a) that sums totalling $1,125,000 received by the defendant ostensibly by way of repayment of principal and payment of interest in respect of the two loans be paid by the defendant to the first plaintiff and an order pursuant to s.588FF(1)(e) releasing the second defendant from the debts for principal and interest. There is an alternative claim for a declaration that payments made by the second plaintiff to the defendant by way of principal and interest were unfair preferences under s.588FA and an order pursuant to s.588FF(1)(a) that the defendant pay to the first plaintiff $1,125,000, being a sum equal to the aggregate of those payments. 3 The loans were made for very short periods at extremely high rates of interest. It is alleged that the circumstances in which repayments of principal and payments of interest were made attract the operation of various provisions within Division 2 of Part 5.7B of the Act and that the first plaintiff, as liquidator of the second plaintiff, therefore has a right to obtain orders under s.588FF(1). 4 By the first cross-claim, the defendant seeks an order declaring the first loan agreement void ab initio and an order declaring the second loan agreement void ab initio. It is alleged that each agreement was procured by misrepresentation of the second plaintiff and that the misrepresentation also amounted to conduct that was misleading or deceptive or likely to mislead or deceive. There are allegations of implied terms of good faith performance and mutual co-operation and breach thereof by the second plaintiff. Paragraphs 20 and 52 of the first cross-claim should be quoted in full: "20. By reason of the matters set out in the Defence and First Cross Claim, the Plaintiffs' conduct, or conduct that the Plaintiffs have taken advantage of, has rendered it unconscientious for the Plaintiffs, as between themselves and the Defendant to assert the exercise of the rights under Part 5.7B of the Corporations Act the subject of the Statement of Claim because those legal rights were acquired by misrepresentation in the event that it is found by the Court that New Tel was insolvent at the time of the First and Second Loans." "52. By the bringing of these proceedings, the Plaintiffs seek to take advantage of their own breaches of contract by relying upon the provisions of Part 5.7B of the Corporations Act." 5 The plaintiffs say that these parts of the first cross-claim proceed on an unsupportable assumption that the first plaintiff (liquidator) was implicated in the conduct complained of, whereas that conduct, having occurred before commencement of the winding up, was conduct of the second plaintiff (company) alone. The plaintiffs also say that the cross-claim is misconceived, in that, even if the allegations and contentions on which it is based were found to be fully made out so that rescission was warranted (whether at general law or under s.87 of the Trade Practices Act 1974 (Cth)), the only result would be that the parties would be restored to their original positions, so that the defendant (lender) was entitled to the principal as if it had never been lent and the second plaintiff (borrower) was entitled to the interest as if the loan had never been made and interest had never been paid. But, of course, the factual position is that the second plaintiff repaid the principal and also paid the interest, so that restoration of the parties to their original positions would require, in a net sense, no more than a refund by the defendant of the interest actually received from the second plaintiff. 6 The defendant regards the position as one in which the second plaintiff has a form of "imperfect title", in that the loan contracts are liable to be declared void ab initio. The first plaintiff, as its liquidator, is said to have no better title than the second plaintiff. The defendant refers to the decision of the High Court in Webb Distributors (Aust) Pty Ltd v State of Victoria (1993) 179 CLR 15 in that respect. It is further said by the defendant that the vitiating factors affecting the loan contracts mean that the benefits and detriments generated by those contracts, from the second plaintiff's viewpoint, should be regarded as never having arisen so that the second plaintiff is to be regarded as if it had never received the loan proceeds and never made repayment with the result that there is, in truth, no payment to be recovered in the principal proceedings. 7 The plaintiffs say that this analysis, even if correct (which I did not understand them to concede), is entirely beside the point. They point to the statutory cause of action upon which they rely in the proceedings. Section 588FF empowers the court to make one or more of several orders where two conditions are satisfied: first, application is made by "a company's liquidator"; and, second, the court "is satisfied that a transaction of the company is voidable because of section 588FE". Section 588FE(1) says: "(1) If a company is being wound up: (a) a transaction of the company may be voidable because of any one or more of subsections (2) to (6) if the transaction was entered into on or after 23 June 1993; and (b) a transaction of the company may be voidable because of subsection (6A) if the transaction was entered into on or after the commencement of the Corporations Amendment (Repayment of Directors' Bonuses) Act 2003 ." 8 There follow five subsections, (2) to (6), all of which begin: "The transaction is voidable if …" 9 Section 9 contains a definition of transaction: "'transaction', in Part 5.7B, in relation to a body corporate or Part 5.7 body, means a transaction to which the body is a party, for example (but without limitation): (a) a conveyance, transfer or other disposition by the body of property of the body; and (b) a charge created by the body on property of the body; and (c) a guarantee given by the body; and (d) a payment made by the body; and (e) an obligation incurred by the body; and (f) a release or waiver by the body; and (g) a loan to the body; and includes such a transaction that has been completed or given effect to, or that has terminated." 10 Having regard to this statutory scheme, the plaintiffs, in the statement of claim, say that they are entitled to the relief I have already outlined, including an order under s.588FF(1)(a) that the defendant pay the first plaintiff the sum of $1,125,000. They do so not on any view or contention as to the status of the loan contracts but because, on the view they take, the factual circumstances fit the conditions for the making of orders under s.588FF(1). 11 The essential point made by the plaintiffs is that the first cross-claim lacks utility and, for that reason, should not proceed. They say that whether or not the two loan agreements are, in due course, shown to be void ab initio, the statutory cause of action made available to the first plaintiff as liquidator remains available and any right to an order for the payment of money to the first defendant is unaffected. The validity or otherwise of the loan agreements is, it is said, irrelevant to the substance of the statutory cause of action and its pursuit. 12 I accept these submissions. Despite use of the word "voidable" as a label in Part 5.7B and references, in general parlance about Part 5.7B, to the "avoidance" of transactions and the "recovery" of moneys related to transactions, the statutory provisions are not concerned with undoing transactions or re-arranging the financial relationships of parties to transactions, vis-à-vis those transactions themselves. They do not involve reliance on contractual rights or the contractual consequences of events. The liquidator, in pursuing the statutory cause of action, does not sue upon a contract or for restitution consequent upon the invalidity of a transaction. Nor is the liquidator affected by any vitiating elements to which a transaction may be subject, except to the extent that those elements may be shown by a defendant to make unavailable the "transaction" foundation for the liquidator's claim, in the sense that there never was in truth a transaction (even one liable to be rescinded or declared void). The liquidator's task is merely to prove facts justifying a conclusion that the company became party to a "transaction" described in s.588FA, s.588FB, s.588FC or was the borrower under a loan described in s.588FD. If any of those things is proved and if, in addition, elements are shown as referred to in a sub-section of s.588FE such as to cause the transaction to be given by s.588FE the statutory designation "voidable", the liquidator has access to the statutory jurisdiction conferred on the court by s.588FF(1). 13 I accept the submission that, in the present circumstances where the liquidator sues upon the statutory cause of action and the loan contracts between the parties have been fully performed and thereby discharged, the first cross-claim serves no useful purpose in determining the rights and liabilities prevailing between the parties. That is of itself sufficient reason to refuse leave under s.471B, particularly when it is remembered that part of the rationale for the statutory stay is to ensure that efforts of a liquidator are not needlessly side-tracked. 14 The interlocutory process is accordingly dismissed with costs. **********