Karimbla Properties v Questra [2006] NSWSC 181

New South Wales Supreme Court

CITATION : Karimbla Properties v Questra [2006] NSWSC 181

HEARING DATE(S) : 17 March 2006

JUDGMENT DATE : 17 March 2006

JURISDICTION : Equity

JUDGMENT OF : Austin J

EX TEMPORE JUDGMENT DATE : 03/17/2006

DECISION : Application for adjournment denied

CATCHWORDS : CORPORATIONS - application to adjourn winding up proceeding during voluntary administration - adjournment refused - relevant considerations

LEGISLATION CITED : Corporations Act 2001 (Cth) s 440A

CASES CITED : Re Quatrovision Pty Ltd (in liq) and the Companies Act 1961 [1982] 1 NSWLR 95

PARTIES : Karimbla Properties (No.3) Pty Ltd (P) Questra Pty Ltd (D)

FILE NUMBER(S) : SC 1241/06

COUNSEL : Ms S Nash (Sol) (P) D J Durston (D)

SOLICITORS : Sally Nash & Co (P) Searle & Associates Lawyers (D)

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

AUSTIN J

FRIDAY 17 MARCH 2006

1241/06 KARIMBLA PROPERTIES (NO.3) PTY LTD V QUESTRA PTY LTD JUDGMENT (Ex tempore; revised on 20 March 2006) 1 HIS HONOUR: By an application filed on 15 March 2006 the voluntary administrators of the defendant, Questra, seek an adjournment of the plaintiff's winding up application until a date after 6 April 2006, that is after the holding of the second meeting of creditors of the company (in Administration) under s 440A(2) of the Corporations Act. That subsection requires the Court to adjourn the hearing of an application for an order to wind up a company if the company is under administration and the Court is satisfied that it is in the interests of the company's creditors for the company to continue under in administration rather than be wound up. 2 The defendant company was placed in administration by decision of its directors made on 7 March 2006. The administrators held the first meeting of creditors required under Part 5.3A and the second meeting of creditors is scheduled to take place on 3 April 2006. 3 The issue for me to determine is whether, on the evidence before me, I am satisfied that it is in the interests of the creditors of the company for the company to continue under administration until 6 April, rather than be wound up immediately. 4 The applicants say that it is in the interests of the creditors of the company for the administration to continue because the director of the company, Mr Stringer, has put forward a proposal for a deed of company arrangement, which will be considered by the creditors; and in their opinion as the voluntary administrators of the company, the proposed deed of company arrangement will render a greater return to creditors than the return that would be available in a winding up of the company. They have reached that opinion for the reasons set out in Mr Hambleton's letter to Baker Johnson dated 10 March 2006. 5 The matter is unusual in some respects. First, this is a case where it appears that all of the remaining unsecured creditors are related to the defendant company or its director, except for the plaintiff. The total amount outstanding to related creditors is approximately $390,000 while the amount claimed by the plaintiff is about $145,000. Today, some evidence was read suggesting that the administrators question whether the plaintiff's claimed debt is really owing. That is a matter that was raised only today and it is unnecessary, for the reasons I shall give, for me to make a determination about it. 6 The matter is unusual also because this is the fourth time it has been before the Court. An account of the earlier applications was given in my ex tempore reasons for judgment delivered on Monday 13 March 2006. From that judgment it is evident that there was considerable confusion, on the part of those seeking to adjourn the winding up application, as to who should give instructions and how the application should be put together and brought. I asked the solicitor for the respondent/plaintiff whether she wished to make any submission as to whether the events on those earlier occasions, before the involvement of Mr Durston of counsel today, suggested incompetency on the part of the voluntary administrators and those advising them but she declined to make that submission. 7 Now, the matter comes before me as an application of the recognisable kind for adjournment under s 440A(2), but I am not satisfied that the ground for the required adjournment has been made out. The problem is there are substantial discrepancies between the two documents said to provide evidence of the proposed deed of company arrangement. The discrepancies are so substantial that the court cannot reach any conclusion as to what is being offered to the creditors, or, more precisely, the only unrelated creditor (the plaintiff) and, therefore, it is unable to reach any view as to the interests of the creditors as a whole. Amongst the discrepancies between the two documents, namely, Mr Stringer's letter to Mr Hambleton of 8 March 2006 and Mr Hambleton's letter to Baker Johnson of 10 March 2006, are the following matters. 8 First, the letter of 10 March refers to various offers made by the Keith Stringer Family Trust and invites Baker Johnson to confirm that the trustee of the Keith Stringer Family Trust is not Questra. Later in the letter Mr Hambleton refers to a potential claim against the Keith Stringer Family Trust pursuant to a right of indemnity in respect of losses incurred as trustee of the trust (if any). The only way I can make sense of that statement is to postulate that Questra was the trustee of the Keith Stringer Family Trust at some stage and incurred debts acting in its position as trustee, thereby generating for itself a right of indemnity out of the trust assets. There is, therefore, substantial uncertainty as to the identity of the trustee of the Keith Stringer Family Trust which is the entity which, according to the letter of 10 March, will make all of the substantial commitments under the deed of company arrangement. 9 Secondly, there is nothing to indicate whether the Keith Stringer Family Trust has any assets other than a debt owed by Questra of a substantial amount. Questra seems to be a company without substantial assets other than some claims it has against Mr and Mrs Ditsis and I & I Projects Pty Ltd for unspecified amounts. Therefore, I am left in very considerable uncertainty as to whether promises by the Keith Stringer Family Trust would have any value. 10 Next, there is a reference in Mr Stringer's letter of 8 March to a mediation scheduled for 12 April, and he says that with the prospect of successful conclusion of the mediation he would pay into the deed fund 20 percent of the recovery. There are no particulars given of the mediation, but it appears to relate to the claims against Mr and Mrs Ditsis and I & I Projects Pty Ltd, which are referred to in Mr Hambleton's letter of 10 March. But the proposal in Mr Hambleton's letter is quite different from the proposal made by Mr Stringer in this respect. 11 The proposal seems to be, according to Mr Hambleton, that the trust make a payment of $20,000 into the Baker Johnson Trust Account to secure the firm's services on the basis that this money will be available to be called upon by Baker Johnson, should the actions be unsuccessful. (I note, though I do not place emphasis on this, that there seems to be some tension between the description of the arrangements for the deposit of $20,000 and another statement by Mr Hambleton to the effect that Baker Johnson will act "on spec" in relation to the recovery actions. It was suggested by counsel for the administrators that the deposited money may have been simply to cover disbursements but the language of the letter does not give any support to that suggestion.) The important point is that the proposal, according to Mr Hambleton, is not for only 20 percent of recovery to be made available, but for apparently the whole of the recovery to be made available. The recovered amount is to be used, first, to cover the costs of the "petitioning creditors" (presumably the plaintiff in the winding-up proceedings), then the remuneration of the administrators, and then the next $50,000 recovered would be paid to non-related creditors, and the balance distributed equally amongst all creditors. The trouble is that there is no indication of the value of the claim or the prospects of recovery. 12 Other discrepancies include the reference by Mr Stringer on 8 March to his proposal to "subrogate his entitlements" to any claims against the company, a proposal which is not reflected in Mr Hambleton's letter of 10 March, except to the extent that, as I have said, proceeds of recoveries will be applied first to unrelated creditors and thereafter to related creditors. 13 There is also a reference in Mr Stringer's letter to the offer of a personal guarantee to secure the amount of $42,500 to be paid under the deed proposal by monthly instalments, but the guarantee is not repeated in Mr Hambleton's letter and the undertaking to make the payment becomes, in Mr Hambleton's letter, an undertaking by the Trust rather by Mr Stringer. 14 The deed proposal is ambiguous in another respect. Although Mr Hambleton's letter of 10 March says that creditors will accept the terms of the deed in full and final satisfaction of their claims, it is not made clear that the deed would have the effect of releasing the company from its obligations to the related party creditors. To the extent there is no such release, there is uncertainty as to whether the company would remain solvent after the execution and implementation of the deed proposal. 15 In his second affidavit, made on 15 March 2006, Mr Hambleton deposed to circumstances indicating that there was a dispute as to the existence of the plaintiff's claimed debt. That is a matter that would be further investigated if the administration were allowed to continue. The applicants submitted it was in the interests of the creditors as a whole for that matter to be pursued. But it seems to me that any issues about the validity of the plaintiff's claimed debt can be investigated by a liquidator if the company is wound up, when the plaintiff lodges a proof of debt. The fact that the plaintiff has issued a statutory demand for the debt which has not been set aside, so that there is a presumption of insolvency by virtue of non-payment of the debt providing a ground for winding up, does not prevent a subsequently appointed liquidator from looking behind the plaintiff's claim to ascertain its validity: Re Quatrovision Pty Ltd (in liq) and the Companies Act 1961 [1982] 1 NSWLR 95. The evidence that the plaintiff's claimed debt may be disputed therefore does nothing to assist the applicants in the present application. In the circumstances, Mr Hambleton's expression of opinion about the best interests of creditors seems to me to be premised on some matters not supported by the evidence presented to me. It may be that he has information about the value of the assets of the Trust or about the value of the claims that the company has, which would enable him to express opinions of the kind he has expressed. If he has that information he has not provided it to the Court. In the absence of evidence providing a foundation for the Court to reach the conclusion that it would be in the interests of the creditors for the company to remain in administration and for the deed proposal to go forward, the Court is required to dismiss the application for an adjournment, and I so do. 16 I have considered whether I ought to grant a further short adjournment of the application under s 440A(2) to give the applicants the opportunity to patch up the application with further evidence. Given, however, that this is the fourth hearing of the matter, it seems to me there would be real injustice to the plaintiff in taking that course. **********