QBE Workers Compensation v M & M Bridgman [2006] NSWSC 501

New South Wales Supreme Court

CITATION : QBE Workers Compensation v M & M Bridgman [2006] NSWSC 501

HEARING DATE(S) : 25 May 2006

JUDGMENT DATE : 25 May 2006

JURISDICTION : Equity

JUDGMENT OF : Austin J

EX TEMPORE JUDGMENT DATE : 05/25/2006

DECISION : Leave granted, on ex parte application

CATCHWORDS : CORPORATIONS - winding up - liquidator seeks leave to appoint himself and another as voluntary administrators - ex parte application - whether notice to creditors should be required before application is determined

LEGISLATION CITED : Corporations Act 2001 (Cth), ss 435A, 436B

QBE Workers Compensation (NSW) Ltd (P) PARTIES : M & M Bridgman Pty Ltd (in liq) (D) John Frederick Lord (A1) Atle Crowe-Maxwell (A2)

FILE NUMBER(S) : SC 6410/05

COUNSEL : J K Chippindall (A)

SOLICITORS : Clinch Neville Long (A)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

AUSTIN J

THURSDAY 25 MAY 2006

6410/05 QBE WORKERS COMPENSATION (NSW) LTD V M & M BRIDGMAN PTY LTD (IN LIQ) JUDGMENT (Ex tempore; revised 25 May 2006) 1 HIS HONOUR: This is an interlocutory application by Mr Lord, the liquidator of a company called M & M Bridgman Pty Limited, for leave under s 436B of the Corporations Act to permit him to appoint himself and his partner Mr Crowe-Maxwell as joint and several administrators of the company. 2 Mr Lord was appointed liquidator by this Court on 16 March 2006 on the application of QBE Workers Compensation. Subsequently there was an application by the sole director of the company, Mr Troutman, for an order that the winding up be terminated, but that application was dismissed by me on 3 April 2006. There is now evidence that the reason for Mr Troutman's decision not to persist with the application is that there were greater debts of the company than he had been aware of when the application was made. 3 The company's business is kitchen installation. Mr Lord decided, because of the application for termination of the winding up, that he would permit the company to continue to trade. It has continued to conduct its business. Mr Lord has taken a personal indemnity from Mr Troutman in relation to costs incurred by him as liquidator while the company continues to trade. Obviously that situation cannot be allowed to continue for the indefinite future. 4 The company's financial position is that for the first half of the 2005/2006 financial year it has a total gross profit of over $133,000 and total expenses of over $105,000, and therefore an operating profit for the six months of a little over $28,000. 5 The total assets of the company as at December 2005, according to the balance sheet that is in evidence, are over $251,000. A substantial portion of those assets are in the form of loans to shareholders. Other assets include motor vehicles recorded at cost. 6 The total liabilities of the company are shown as over $223,000. The current liabilities are shown to include GST liability of $2,285.69 and payroll tax liability of $21,060. Included in the long-term liabilities is a loan by a financier in the amount of $70,000 supported by a registered fixed and floating charge over the company. 7 According to the liquidator's evidence, the company generates large profits but its problem has been that the director appears to have taken too much money out of the company by way of director's fees, leaving its cash position and income balance artificially depressed. But the cash flow forecast from June 2005 is healthy and in his position as liquidator Mr Lord has already collected some $37,000 and anticipates a further substantial amount by mid-June. 8 The company's trading liabilities are wages of approximately $2000 per week, and GST/PAYG costs and service of the company's vehicles of approximately $400 per week. It appears that collections will fund recurrent expenses and also provide enough to cover the costs of the liquidator or voluntary administrators. 9 The director has obtained personal loan approval for a loan of $395,000 and has told the liquidator that those funds will be loaned to the company for the purpose of part payment of the current financier loan to the company. 10 Mr Lord's view is that the appropriate course is voluntary administration, with a view to presenting to creditors a proposal for a deed of company arrangement that would enable creditors to be paid in full and the company to be saved from liquidation. 11 I am persuaded by the evidence that this is an appropriate course to take. In such applications the Court should be guided by the principles underlying s 435A of the Corporations Act. In my view those principles will be best served by allowing the liquidator to commence a process of voluntary administration. 12 The only hesitation that I have had is whether to grant leave to the liquidator in an application made ex parte, without notice to the principal creditors (especially, the financier to the company and the Commissioner of Taxation). 13 Although Mr Lord says that he hopes that the proposed deed of company arrangement will result in full payment to unsecured creditors, and the director's proposal is to pay out the existing loan, there is, of course, a possibility that voluntary administration will not work out so favourably to creditors. They may not only not be paid in full, but if the deed of company arrangement is implemented they will lose the benefit of any liquidator recoveries that might have been pursued (at least in theory) if the liquidation remained on foot. There is therefore some potential prejudice to creditors. 14 On the other hand, as creditors they will have the opportunity to participate in meetings as part of the process of voluntary administration. Notice to affected creditors will add to the cost of the application in a way that is out of proportion to the narrow issue that the application raises. This is an application for leave to do something which the liquidator could do, without leave, by appointing somebody else. To require notice to some or all creditors would be to impose on the administration of the company an additional cost which, in my view, would not be justifiable. 15 On balance the appropriate course is to grant leave for the liquidator to appoint himself and his partner as joint and several administrators, on the liquidator's ex parte application. 16 I should note that the reason why Mr Lord wishes to appoint Mr Crowe-Maxwell as well as himself is because it is likely that during the course of the administration he will be interstate from time to time. 17 I make the orders in the short minutes of order which I now sign for identification. **********