New South Wales Supreme Court CITATION : Willow Tree Retirement Village Pty Ltd & Anor [2006] NSWSC 653 HEARING DATE(S) : 28/06/06 JUDGMENT DATE : 29 June 2006 JURISDICTION : Equity Division Corporations List JUDGMENT OF : Barrett J EX TEMPORE JUDGMENT DATE : 06/28/2006 DECISION : Orders for winding up in insolvency and appointment of liquidator CATCHWORDS : CORPORATIONS - winding up - winding up in insolvency - where voluntary administrator unable to make reliable findings as to identities of creditors - apprehension that any decision of second meeting of creditors in Part 5.3A administration may be flawed - company clearly insolvent - whether voluntary administrator has standing to apply for winding up LEGISLATION CITED : Corporations Act 2001 (Cth), Part 5.3A, ss.437A(1)(d), 437B, 439A, 439C, 459P(1)(a), 513A9b), 513C(b) Re Associated Securities Ltd [1981] 1 NSWLR 742 CASES CITED : Re Inkerman Grazing Pty Ltd (1972) 1 ACLR 102 Re United Medical Protection Ltd (2002) 41 ACSR 623 PARTIES : Willow Court Retirement Village Pty Limited (Administrator Appointed) and Willow Court Village Pty Limited (Administrator Appointed) - Applicants FILE NUMBER(S) : SC 3453/06 COUNSEL : Mr A.P. Spencer - Applicants SOLICITORS : Slater & Gordon Lawyers - Applicants IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BARRETT J THURSDAY, 29 JUNE 2006 3453/06 WILLOW COURT RETIREMENT VILLAGE PTY LTD (ADMINISTRATOR APPOINTED) & ANOR REASONS FOR JUDGMENT 1 The following are my reasons for making, on 28 June 2006, orders that each of Willow Court Village Pty Limited (which I shall call "Village") and Willow Court Retirement Village Pty Limited ("Retirement Village") be wound up in insolvency and that Mr M.J.M. Smith be appointed liquidator in each case, together with certain incidental orders. 2 Mr Smith was, on 5 June 2006, appointed under Part 5.3A of the Corporations Act 2001 (Cth) as administrator of each of Village and Retirement Village. The appointment was, in each case, made by Ms Cavanough who represented herself to be the sole director of the company. The searches of records maintained by Australian Securities and Investments Commission tendered upon the hearing showed her to be the sole director in each case. Nothing before the court casts doubt on the matter. I accept, therefore, that Mr Smith was regularly and validly appointed administrator under Part 5.3A. 3 Following his appointment, Mr Smith made investigations and inquiries in relation to the companies. He had had no prior connection with or knowledge of them. It became clear to him that the activities of the companies are related to the development of a disused hospital at New Norfolk in Tasmania as a retirement village. The precise picture remains, in some respects, clouded. It seems reasonably clear, however, that Village owns the hospital site and that Retirement Village holds, as virtually its only asset, a general charge over the assets of Village securing indebtedness of Village to Retirement Village. Village appears to have given certain specific mortgages of its real property. 4 It is quite clear, on the materials placed by Mr Smith before the court, that each of Village and Retirement Village is insolvent. 5 Mr Smith's investigations showed that about 230 persons had purported to invest in one or other of the companies, or in an undefined way in the project or, in some instances, in ostensibly non-existent companies having names similar to those of Village and Retirement Village. 6 Mr Smith placed before the court seven distinct documents in the nature of prospectuses apparently issued by one or other of the companies. Those documents purport to offer or invite subscriptions for ordinary shares, preference shares, "fixed interest 10% (debentures)", "profit options" and "profit shares". Mr Smith has also put into evidence a small number of certificates ostensibly relating to shares in the companies and shares in apparently non-existent companies having similar names. 7 Having been appointed administrator, Mr Smith prepared a preliminary report which was issued to persons known to have paid money in response to the various investment invitations. For the purposes of the first meeting of creditors in each Part 5.3A administration (which took place on 13 June 2006), he treated all such persons as creditors, without coming to any concluded view about their status. With the second meeting of creditors approaching and in the light of further information obtained since the first meeting, Mr Smith is left in genuine doubt as to whether certain supposed shareholders are really shareholders (they having been paid "interest") and whether shares have in reality been issued to many of them. He is also in a position of uncertainty regarding persons who have paid money, by way of investment, to apparently non-existent companies, albeit in circumstances indicating that the moneys were received by someone and that there was an intention on the part of the person paying to invest in the retirement village development. 8 With matters in the state I have described, Mr Smith approached the court saying, in effect, that he had no reliable means of ascertaining the creditors of either company for the purposes of the substantive meeting of creditors under s.439A scheduled for 30 June 2006. Notice of such a meeting had already been given to all known "investors". Mr Smith apprehended that the meeting would not represent a safe vehicle for transporting either company to one of the destinations contemplated by s.439C, that is, a deed of company arrangement (no such proposal was, however, mentioned), the particular form of creditors voluntary winding up that arises in consequence of Part 5.3A administration or reversion to control of the director. 9 Having looked at the materials, I was satisfied that this apprehension was well based. If and to the extent that there are unsatisfied applications or contracts for the allotment of shares, the theoretically possible classifications of the persons concerned would be as contributories, as creditors or as beneficiaries of an implied trust, depending upon precise circumstances: see, for example, Re Associated Securities Ltd [1981] 1 NSWLR 742. Persons who have purportedly paid money to a non-existent company (which money has been received by a genuine person) may be creditors or the beneficiaries of trusts or, perhaps, may have no claim or right at all. Again, circumstances will be all important. 10 In light of the matters put before the court – and with the evidence clearly indicating that each company is insolvent – I was satisfied that the court should, in the interests of creating a firm foundation for the external administration obviously needed, order that each company be wound up and that a liquidator be appointed. 11 Attention was then given to the question of standing to apply for a winding up order. In case of an application for winding up in insolvency, the matter of standing is governed by s.459P(1). A Part 5.3A administrator of the company itself is not a qualified applicant. Mr Spencer of counsel, who appeared on the application, submitted that the matter could be brought within s.459P(1)(a) (which makes the company itself a competent applicant) if Mr Smith, as administrator, were seen to be authorised to set each company in motion in that way. I accepted that submission 12 The necessary power, in this respect, was seen to come from s.437A(1)(d), supported by s.437B. Under s.437A(1)(d), an administrator may "perform any function, and exercise any power, that the company … could perform or exercise if the company were not under administration". In doing so, the administrator acts as the company's agent: s.437B. Clearly enough, the power to apply for the company's own winding up is comprehended by the s.437A(1)(d) description. Because of s.459P(1)(a), the Act itself recognises that a company has power to apply to the court for its own winding up. And, because of the expansive terms of s.437A(1)(d) supported by s.437B, it is not necessary to address the question which sometimes arises where directors cause the company to apply for an order for its own winding up, namely, whether that action is within the scope of management. That question is, in any event, I think now generally resolved in favour of the strand of authority represented by Re Inkerman Grazing Pty Ltd (1972) 1 ACLR 102: see Re United Medical Protection Ltd (2002) 41 ACSR 623. 13 Because of the conclusion that a combination of ss.437A(1)(d), 437B and 459P(1)(a) permitted the making of winding up orders upon an interlocutory process filed by the two companies (at the instigation of Mr Smith as administrator), it was not necessary to explore the possibility that Mr Smith might have standing through a combination of ss.437A(1)(d), 437C(1) and 459P(1)(d), subject to a grant of leave under s.459P(2). 14 Mr Smith wished to be sure that the winding up would be regarded as having commenced on the date of his appointment as liquidator. It was suggested that the orders of the court should be that each company be wound up "as and from 5 June 2006" and that Mr Smith be appointed liquidator "as and from 5 June 2006". I did not consider it appropriate to make orders in those terms. The Act does not contemplate that a winding up order can somehow be given retrospective effect by its own terms. In any event, 5 June 2006 will be the date of commencement of each winding up for the purposes of all provisions of the Corporations Act concerned with the question of when it began. This is the effect of ss.513A(b) and 513C(b). 15 Finally, I considered it appropriate to make an order under s.467(3)(b) dispensing with all advertising and notification requirements in respect of the winding up applications. This was in circumstances where the applications were being made in the knowledge of Ms Cavanough and a group of the major "investors", all of whom had been informed of Mr Smith's intention to seek winding up and had expressed no opposition. ********** 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.