Reported Decision : 58 ACSR 599 New South Wales Supreme Court CITATION : Hays Personnel Services (Australia) Pty Ltd v ACN 094 797 618 Pty Ltd [2006] NSWSC 917 HEARING DATE(S) : 14/08/06 JUDGMENT DATE : 8 September 2006 JURISDICTION : Equity Division Corporations List JUDGMENT OF : Barrett J DECISION : Winding up order made. Liquidator appointed. CATCHWORDS : CORPORATIONS - winding up - who should be appointed liquidator - associated company already in liquidation - whether same liquidator should be appointed LEGISLATION CITED : Corporations Act 2001 (Cth), ss.532(2)(c), National Australia Bank Ltd v Market Holdings Pty Ltd (2001) 37 ACSR 629 Re HIH Insurance Ltd (unreported, NSWSC, 15 March 2001), CASES CITED : Re Jones as liquidator of ACN 110 802 938 Pty Ltd (2006) 57 ACSR 234 Re Nuhan Ltd (1980) 5 ACLR 69 Re Pacific Acceptance Corporation Ltd (1977) 2 ACLR 528 Re The Black Stump Enterprises Pty Ltd [2005] NSWCA 480 Hays Personnel Services (Australia) Pty Ltd - Plaintiff PARTIES : ACN 094 797 618 Pty Ltd previously known as DC Corporation Australia Pty Ltd - Defendant Michael Gregory Jones and ACN 110 802 938 Pty Limited - Applicants FILE NUMBER(S) : SC 3156/06 COUNSEL : Mr P.J. Cook - Plaintiff Mr J.T. Johnson - Applicants SOLICITORS : D. Riggio & Associates - Plaintiff Uther Webster & Evans - Applicants IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BARRETT J FRIDAY, 8 SEPTEMBER 2006 3156/06 HAYS PERSONNEL SERVICES (AUSTRALIA) PTY LTD v ACN 094 797 618 PTY LTD PREVIOUSLY KNOWN AS D.C. CORPORATION AUSTRALIA PTY LTD JUDGMENT 1 I have before me an originating process filed on 7 June 2006 by which the plaintiff, Hays Personnel Services (Australia) Pty Ltd, seeks an order that the defendant, ACN 094 797 618 Pty Ltd, be wound up and that a liquidator be appointed. The consent of Mr Robert Elliott to act as liquidator has been filed by the plaintiff. Also before me is an interlocutory process by which ACN 110 802 938 Pty Ltd (which I shall call "ACN"), a creditor of the defendant, seeks the appointment of a different person as liquidator and leave under s.532(2)(c) for that person to seek to be appointed, and to act, as liquidator. The alternative person thus proposed for appointment is Mr Michael Jones. 2 There is no dispute about the central question of winding up. Grounds for the making of a winding up order have been shown and the order will be made. The only issue with which I must deal concerns the choice of liquidator. 3 There is no question about the suitability of Mr Elliott, the liquidator proposed by the plaintiff. But it is submitted on behalf of ACN that certain advantages would flow from the appointment of Mr Jones. The plaintiff, on the other hand, is concerned that Mr Jones may, because of another connection, be placed in an undesirable position of conflict if he becomes liquidator of the defendant. 4 ACN is itself in the course of being wound up. It became subject to creditors voluntary winding up on 10 February 2006. Mr Jones became the liquidator of ACN on that day (having previously been the administrator under a Part 5.3A administration) and continues as liquidator. It is because of his position as liquidator of ACN that Mr Jones believes that there will be advantages in his also being liquidator of the defendant. And it is Mr Jones' position as liquidator of ACN that causes the plaintiff to regard him as unsuitable for appointment as liquidator of the defendant. 5 In his affidavit, Mr Jones refers to a number of ways in which the affairs of the defendant and those of ACN overlap and intersect. The directors of ACN at the time of Mr Jones' appointment as administrator were, on his understanding, Mr Zukriegl and Mr Banovec, although it appears that Mr Zukriegl may have resigned shortly beforehand. It appears that, at the time of Mr Jones' appointment, ACN was the trustee of a trust known as the Capital Trust, having been appointed to that office on 1 September 2004. The directors of the defendant, according to ASIC search results, are Mr Banovec and three persons with addresses in other countries. It appears that the defendant was the trustee of the Capital Trust before being replaced by ACN on 1 September 2004. Documents in Mr Jones' possession as liquidator of ACN suggest that the defendant became trustee on 1 February 2003 and, in some documents, continued to describe itself as the trustee of the Capital Trust after its apparent replacement by ACN on 1 September 2004. It appears that the trustee for the time being of the Capital Trust conducted a mortgage broking or mortgage originating business. 6 Mr Jones has been provided with documents suggesting that, in September 2004, the defendant, as trustee of the Capital Trust, purported to effect an assignment. I had occasion to refer to those documents in a judgment of 12 April 2006 (Re Jones as liquidator of ACN 110 802 938 Pty Ltd (2006) 57 ACSR 234) and it is convenient to repeat here the description I gave there: "The plaintiff has raised similar concerns in relation to a … transaction of September 2004 under which the company of which … [ACN] … purported to assign something to Capital Securitisation Ltd. What it was that was intended to be assigned is not clear. It is referred to as 'the rights and the title of' another 'loan book' pertaining to loans of some $105m. Again, it seems likely that a right to receive some ongoing commission or reward was intended to be assigned. The price in this case was $150,000. Capital Securitisation Ltd was, it may be noted, one of the vendors under the subsequent sale agreement of 1 November 2005. The transaction of September 2004 is the subject of unanswered questions in the mind of the plaintiff generally similar to those raised in relation to the transaction of 1 November 2005." 7 Mr Jones has also been provided with documents relating to a subsequent transaction or series of transactions also briefly described in the earlier judgment: "[10] The first sale … is a sale by three parties (one [ACN]) pursuant to an agreement dated 1 November 2005. The three sellers are named and described in that agreement as follows: DC CORPORATION AUSTRALIA PTY LIMITEDACN 094 797 618 (DC), CAPITAL SECURITISATION LIMITED ACN 110 234 109 (CS) AND ACN 110 802 938 PTY LTD TRADING AS THE CAPITAL TRUST (CT) (collectively, SELLER). [11] The 'Purchaser' is two companies, CT Franchises Pty Ltd and CT Lending Pty Ltd. [12] The agreement recites that 'the seller' has conducted business as a mortgage originator, mortgage manager and franchisor of businesses which act as mortgage brokers and originators under franchise agreements and licence agreements, as well as direct business. The first operative provision (apart from one containing definitions) is cl 2.1. It says that the seller sells and the purchaser purchases 'the business with effect from the effective date' which is 1 November 2005. The purchase price is dealt with in cl 8. That clause refers to two parts of 'the business', being the 'assigned franchises' and the 'loan book'. A price of $358,000 is allocated to the latter, while the price allocated to the former is 'nil'. [13] While there are only two items referred to in cl 3.2 which fixes the price, there are additional items actually sold. These are referred to in various provisions of cl 2. In relation to franchises, it is recorded in cl 3.1 that the seller owes money to the franchisees and that the purchaser is to pay those moneys. This may explain why the franchises were sold for zero consideration and why what is effectively the whole price of $358,000 is attributed to the 'loan book', that is according to the definition clause, 'the rights to receive commissions and margins accruing from the business which have been earned by the seller as a result of loan applications having been submitted by it and franchisees to various lenders …'. Particulars of the lenders and the loans are set out in a schedule. [14] The plaintiff is concerned about the bona fides of this transaction. His concerns arise from the fact that Mr Banovec appears to have (or to have been promised) a 16% interest in the purchasing group and from his inability to demonstrate receipt of the purchase price by the selling companies. The plaintiff also entertains doubts as to whether the price was a proper price. Part of the plaintiff's concern centres upon the role of a Mr Frampton who appears to have been involved in both the selling group and the buying group and whose reply to a request for information about the receipt of the purchase moneys came from solicitors and declined to provide any information on that matter. It is a document apparently originating from Mr Frampton which refers to the intention that Mr Banovec should have a 16% interest in the purchasing group. As to the adequacy of the price, the plaintiff refers in his affidavit to the fact that the loans identified in the sale agreement as involved in the 'loan book' total more than $434m. While that may be so, the figure of $434m is not indicative of the value of the 'loan book' as defined, that is, 'the right to receive Commissions and margins' referable to the listed loans." 8 In his affidavit filed in the present proceedings, Mr Jones refers to inquiries he has made about the purchasers under this second transaction. He has also made inquiries about so-called "Capital Trust franchises" which appear to be arrangements under which persons unrelated to the defendant and ACN operate "franchises" of or for the Capital Trust. These arrangements were, it appears, entered into by the defendant but invoices were sent to the other parties by ACN. In these connections, it seems that all of ACN, the defendant and the purported assignee under the September 2004 assignment purported to execute documents as trustee of the Capital Trust. Mr Jones adds that "it appears that there has been a combining of the financial information relevant to [the defendant] with financial information for [ACN]". 9 This last matter has presented particular difficulties for Mr Jones as he attempts to perform his functions as liquidator of ACN. For example, a bank account which he believes was used by ACN is in the name of the defendant and the bank will not give him details of transactions on it. Nor will the Australian Taxation Office give him information about the defendant which he considers is really information pertinent to ACN. 10 Mr Jones next refers to the results of examinations of certain officers of ACN and other persons. I quote from his affidavit: "Further, from the Examinations, it was evident that there had been an intermingling of the finances of [ACN] and [the defendant]. I have received a number of proofs of debt from creditors of [ACN] who also purport and may very well be creditors of [the defendant], in particular, the creditors who purport to have claims arising out of Franchise Agreements for the Capital Trust. Some of these agreements were entered into by [the defendant] in its capacity as trustee and some were entered into simply in [the defendant's name]. The exact dealings of [the defendant] in relation to the Franchise Agreements has not been fully investigated by me, as my powers in respect of [the defendant] have been limited, due to the fact that I am not a liquidator of [the defendant]." 11 The reasons why Mr Jones wishes to be liquidator of the defendant and considers that such an appointment will be beneficial are stated at the end of his affidavit: "My concern is, that if I am not appointed the Liquidator of [the defendant], there is likely to be a substantial duplication of the work which I have already carried out as liquidator of the [ACN] in any liquidation of [the defendant]. Further, there appears to be a substantial overlapping of the creditors in respect of both [ACN] and [the defendant] and it is difficult, if not impossible, to distinguish between who may be creditors of [the defendant] and [ACN] at this point in time and what are the financial and other records of [ACN] and [the defendant]. This essentially arises from both [ACN] and [the defendant], being the trustees of the Capital Trust and on some occasions, both purporting to be the trustee of the Capital Trust at the same time, notwithstanding [the defendant's] resignation on 1 September 2004." 12 The question posed by the interlocutory process is really as to the significance and effect of the overlap and intersection between the affairs of ACN and the affairs of the defendant. On the view taken by Mr Jones, efficiencies would be achieved if one person were the liquidator of both so that one mind could be brought to bear on matters at hand in which the roles of the two companies seem to be confused. The contrary view is taken by the plaintiff. It maintains that the apparent overlap and confusion are best dealt with by a situation in which the independent thinking and analysis of two liquidators are available. 13 Mr Cook of counsel, who appeared for the plaintiff, emphasised the need for a liquidator to be able to bring unbiased and objective judgment to bear. He referred to the following passage in the judgment of Young J (as he then was) in National Australia Bank Ltd v Market Holdings Pty Ltd (2001) 37 ACSR 629 at p.658: "What the court looks for in a liquidator is a person who can deal with the disputes that will inevitably arise in the liquidation in a fair and just way. The duties of a liquidator in this aspect of his or her task may be considered briefly under three heads, the duty to be independent, the duty to act impartially and the duty to avoid conflict between duty and interest or duty and duty. The duties owed by a liquidator in a court winding up and a liquidator in a creditors' voluntary winding up are analogous: see McPherson, op cit, at p 294; Re Intercontinental Properties Pty Ltd (in liq) (1977) 2 ACLR 488 at 491; Re Mecirt Holdings Pty Ltd; Ex parte Mecirt Pty Ltd (1998) 16 ACLC 1148 at 1151. I will briefly consider these three aspects of duty." 14 Mr Cook also drew attention to the following passage in his Honour's judgment (also at p.658): "The authorities truly say that it is necessary for a liquidator not only to be independent, but also to be seen to be independent: Re Chevron Furnishers Pty Ltd (in liq); Queensland Amalgamated Industries v Harris [1995] 1 Qd R 125; (1993) 12 ACSR 565 at 570. Usually this means that the liquidator must have no prior or other involvement either with the company in liquidation, its directors and major shareholders, or one of its creditors so that he or she could not fairly and impartially carry out his or her duties as liquidator requiring him or her, in broad terms, to act in the best interests of the general body of creditors: Re Chevron Furnishers Pty Ltd at 570 Re National Safety Council of Australia (Vic Div) [1990] VR 29 at 34; (1989) 15 ACLR 355; Re Queensland Stations Pty Ltd (1991) 9 ACLC 1341 at 1344; Re Giant Resources Ltd [1991] 1 Qd R 107; Re Club Superstores Aust Pty Ltd (in liq) (1993) 10 ACSR 730." 15 Mr Johnson of counsel, who appeared for ACN, did not seek to detract in any way from the need to appoint someone able to act in a fair and just way. He did, however, submit that, in the particular circumstances of this case, there would be no compromising of standards if Mr Jones were appointed so that the envisaged efficiencies might be realised. 16 It would not be appropriate to appoint Mr Jones as liquidator of the defendant if there were any clear apprehension of conflicting interests as between the defendant and ACN. As I view the matters discussed in Mr Jones' affidavit, things have not yet reached any such point and may well never do so. ACN is a creditor of the defendant but it is not suggested, at least at this stage, that the rights and obligations in that respect are otherwise than clear. The source of difficulties is relationships between, on the one hand, one or other of the defendant and ACN (it is sometimes not clear which) and, on the other, third parties, whether they be purchasers or assignees under the two transactions, so-called "franchisees" or others. 17 The situation is thus analogous to that in which a "group" of related companies fails and the separate companies enter winding up. As is shown by the various "pooling" cases recently considered by the Court of Appeal in Re The Black Stump Enterprises Pty Ltd [2005] NSWCA 480, advantages can often accrue to the separate bodies of creditors in a "group" situation if one liquidator is acting. 18 Guidance on the present question is provided by the judgment of Needham J in Re Nuhan Ltd (1980) 5 ACLR 69. In that case, one person was appointed to be liquidator of each of three associated companies. The considerations that led Needham J to take that course appear from the following passage in the judgment (at p.76): "I think that in the first instance I should appoint one liquidator only. My reason for this conclusion is that, as I have said, much investigation still needs to be done. It is, I think, preferable in the interest of economy that only one liquidator be appointed initially. The liquidator appointed is an officer of the court, in the sense that he is under the control of the court, and he will be aware that should the stage be reached that conflicts cannot fairly be resolved without the appointment of another liquidator he should approach the court to be relieved of one of the offices. I envisage from the evidence presently available that that stage could well be reached. The A list liquidator who is next on the list for appointment is John William O'Brien and I appoint him liquidator of each of the three companies." 19 Needham J had earlier said, in Re Pacific Acceptance Corporation Ltd (1977) 2 ACLR 528: "In the normal case where there is a winding up of a holding company and of a subsidiary it is plainly in the interests of the creditors in some respects that the same person should be appointed liquidator. If there are matters which might arise as between the holding company and the subsidiary company then, of course, it would be unwise to appoint one liquidator to both companies." 20 In Re HIH Insurance Ltd (unreported, NSWSC, 15 March 2001), a creditor submitted that the same persons should not be provisional liquidators of each of several related companies. Bergin J made the appointments, saying: "Mr Ryan in response submits that Mr McGrath and Mr Macintosh who have consented to act as provisional liquidators and if to either of those men there appears to be a conflict then one would, of course, expect either of those two men or both of them to immediately approach the Court to indicate such a position. I do not require an undertaking from either Mr McGrath or Mr Macintosh, whom I intend to appoint, to approach the Court should there be a conflict. I take the view it goes without saying and it is part of their obligation." 21 The court is thus generally content to leave with the liquidator concerned the responsibility to be vigilant for the future emergence of conflicts. Of course, if any real possibility of conflict is apparent at the outset, the appointment will not be made. That is not the position here. In the absence of any clear grounds for an apprehension of conflict between the two companies – but recognising that, as investigations proceed, such an apprehension may emerge – the appropriate course is to appoint Mr Jones as liquidator of the defendant. Advantages and efficiencies will flow from this. But because of the need for conscious attention to be given to the possibility of conflict at some later stage, I intend to make an order that he report to the court in due course. 22 The considerations I have canvassed concerning independence and the ability to being unbiased and objective judgment to bear are also relevant to the question of any grant of leave under s.532(2)(c) in respect of Mr Jones. That provision is as follows: "(2) Subject to this section, a person must not, except with the leave of the Court, seek to be appointed, or act, as liquidator of a company: … (c) if: (i) the person is an officer or employee of the company (otherwise than by reason of being a liquidator of the company or of a related body corporate); or (ii) the person is an officer or employee of any body corporate that is a mortgagee of property of the company; or (iii) the person is an auditor of the company; or (iv) the person is a partner or employee of an auditor of the company; or (v) the person is a partner, employer or employee of an officer of the company; or (vi) the person is a partner or employee of an employee of an officer of the company." 23 Such leave is said to be required in this case because of what is referred to in Mr Johnson's written submissions as Mr Jones' "position as an 'officer' of ACN 110 802 938 Pty Ltd (in liquidation) a creditor of the defendant company". Because a liquidator is within the s.9 definition of "officer", the connection thus identified would be within the purview of s.532(2)(c) if ACN were a secured creditor of the defendant – or, as s.532(2)(c)(ii) puts it, "a mortgagee of property of" the defendant. I have found nothing in the evidence suggesting that ACN holds any mortgage of property of the defendant. I can accordingly see no basis on which there is a need for the leave sought. For that reason alone, I will not make the order, although I do indicate that the factors which have caused me to conclude that Mr Jones should be appointed liquidator of the defendant would also make a grant of leave appropriate. I say this because I regard the control imposed through s.532(2)(c) as a particular statutory version of or supplement to equity's predisposition to guard against compromise of the undivided loyalty owed by fiduciaries. 24 The orders of the court are as follows: 1. Order that ACN 094 797 618 Pty Ltd (previously known as DC Corporation Australia Pty Ltd) be wound up in insolvency. 2. Order that Michael Gregory Jones be appointed liquidator of ACN 094 797 618 Pty Ltd. 3. Order that, not more than three months after the making of these orders, the said Michael Gregory Jones file in these proceedings a brief report on the question whether there may be grounds for an apprehension that he is inhibited in the due discharge of his responsibilities as liquidator of ACN 094 797 618 Pty Ltd by reason of his also being liquidator of ACN 110 802 938 Pty Ltd. 4. Grant liberty to the plaintiff and to ACN 110 802 938 Pty Ltd to apply in these proceedings on any question going to the continuation of the said Michael Gregory Jones in office as liquidator of ACN 094 797 618 Pty Ltd. 25 I will entertain any application there may be for a costs order. Also, if there is some relevant matter that I have not taken into account in my consideration of the s.532(2)(c) question, the application for leave under that section may be renewed. ********** 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.