Michael Joseph Patrick Ryan re Exception Finance Pty Ltd [2006] NSWSC 297

Reported Decision : (2006) 24 ACLC 463

New South Wales Supreme Court

CITATION : Michael Joseph Patrick Ryan re Exception Finance Pty Ltd [2006] NSWSC 297

HEARING DATE(S) : 13/04/06 JURISDICTION : Equity Division Corporations List

JUDGMENT OF : Barrett J

EX TEMPORE JUDGMENT DATE : 04/13/2006

DECISION : Order conferring further power on provisional liquidator

CATCHWORDS : CORPORATIONS - provisional liquidator - power of court to extend by later order the powers conferred on provisional liquidator by order of appointment

LEGISLATION CITED : Corporations Act 2001 (Cth), ss.472(3), 472(4), 477(2)(c) Uniform Civil Procedure Rules 2005, rule 36.16

CASES CITED : Hutchinson v Nominal Defendant [1972] 1 NSWLR 443 Re Rothwells Ltd [1990] 2 Qd R 181

Michael Joseph Patrick Ryan as provisional liquidator of Exception Finance Pty Limited - Applicant PARTIES : Exception Holdings Pty Limited - First Respondent Michael Joseph Patrick Ryan as liquididator of Exception Holdings Pty Limited - Second Respondent Exception Finance Pty Limited - Third Respondent

FILE NUMBER(S) : SC 3164/05

COUNSEL : Mr D.A.C. Robertson - Applicant

SOLICITORS : Henry Davis York - Applicant

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

Barrett J

Thursday 13 April 2006

3164/05 re Exception Finance Pty LIMITED (in provisional liquidation)

JUDGMENT

1 I have before me an interlocutory process filed by the provisional liquidator of Exception Finance Pty Limited appointed by orders made by the court on 8 July 2005. He seeks enlargement of his powers. 2 When making the appointment of 8 July 2005, Campbell J imposed a limitation upon the powers that would otherwise have been made available to the provisional liquidator by operation of s.472(4) of the Corporations Act 2001 (Cth). He did that because of uncertainties about various aspects of the group of which the company forms part. 3 Subsequent proceedings have resolved and clarified matters to a point where the provisional liquidator now wishes to have power to sell a particular asset of the company, being a mortgage book which produces income by way of trailer commissions and will continue to do so for some considerable time. Because of the position of the group as a whole in July 2005 and the significance of the mortgage book, Campbell J considered that a power of sale should be withheld. Such a power would otherwise have arisen by the combined operation of ss.472(4)(b) and 477(2)(c). 4 The provisional liquidator's affidavit makes it clear that the company's activities have now been discontinued, in the sense that it no longer has employees and no longer writes new business. It is in run-off mode. One possibility canvassed in the provisional liquidator's affidavit is that he should remain as provisional liquidator for twenty years or more so that he might continue to collect trailer commissions on the mortgage book. He sees that as an unsatisfactory situation for creditors. 5 Another possibility is that there should be brought before the court an application for the making of a winding up order and the appointment of a liquidator. That, however, presents a particular and peculiar problem in that the making of a winding up order would amount to an event of default under the contractual arrangements relating to the relevant mortgage book. The occurrence of an event of default would enable AFIG, the other party to those contractual arrangements, to terminate them, thereby cutting off the flow of trailer commissions and destroying the value of the mortgage book. Furthermore, AFIG has intimated that it would terminate if it had grounds to do so. A winding up order is, for obvious reasons, not in the interests of creditors in those circumstances. 6 A third possibility canvassed by the provisional liquidator in his affidavit is termination of the provisional liquidation and return of the company to its directors. Given the dissension among directors that played a significant part in the appointment of the provisional liquidator in the first place and the present position of the company, that would obviously not be a satisfactory outcome. 7 It is in these circumstances that the provisional liquidator informs the court that he has come to the view that the best way forward is to attempt to sell the mortgage book, thereby realising value for creditors. He therefore seeks an order of the court extending his powers so that he has the power referred to in s.477(2)(c) with respect to the property of the company generally – and, in particular, the mortgage book as defined in his affidavit sworn on 4 April 2006. 8 Section 472(3)(b) says that a liquidator appointed provisionally "has or may exercise such functions and powers … as the Court specifies in the order appointing him or her". There is no explicit provision of the Act envisaging expansion or other variation of the powers specified in the appointing order. Mr Robertson of counsel, who has appeared on the application for the provisional liquidator, makes the point, however, that the order appointing a provisional liquidator is of its nature an interlocutory order, with the result that it is subject to variation in accordance with rule 36.16 of the Uniform Civil Procedure Rules. 9 I am satisfied that s.472(3)(b), dealing with the powers of a provisional liquidator and referring expressly to the order appointing the provisional liquidator, proceeds on an implicit footing that such an appointment is an interlocutory measure which is to have effect during the pendency of the winding up application. There can have been be no legislative intention that the powers arising from the appointing order are immutable or that the court cannot vary them if it is beneficial to the interim administration to do so. Indeed, there are reported cases in which the court has later supplemented or varied the powers originally conferred by it upon a provisional liquidator. A passage in the judgment of Cooper J in Re Rothwells Ltd [1990] 2 Qd R 181 explains the basis: "It is because provisional liquidation is interlocutory in nature that no question as to the validity of the order appointing the provisional liquidator arises when a change in circumstances renders it appropriate to vary or discharge or suspend the earlier order." 10 His Honour continued: "The court's power to make such an order in these circumstances is no different from the court's inherent power to do so in circumstances other than those specifically dealt with in the Code on the Companies Rules." 11 The relevant aspect of the inherent jurisdiction is that discussed by Isaacs J in Hutchinson v Nominal Defendant [1972] 1 NSWLR 443 at pp.447-8 (see also the discussion at paragraph 36.16.35 of Ritchie's "Uniform Civil Procedure NSW"). 12 I am satisfied that the court has power to vary the provisional liquidator's powers in the way he seeks. I am also satisfied that, having regard to the considerations referred to in his affidavit, the court should do so. It will be beneficial to the due progress of the provisional administration, for the reasons stated in the affidavit, that the provisional liquidator have the power of sale he seeks 13 One interested party has expressed to the provisional liquidator reservations about the proposal to seek to sell the particular mortgage book. It was foreshadowed that that party might appear to oppose the making of the order now sought. However, I have been furnished with correspondence which makes it clear that the matter has been dealt with by an undertaking given out of court to the effect that the provisional liquidator will notify that party of his intention to distribute the realised proceeds of any sale of the mortgage book not less than fourteen days prior to the proposed date of distribution. On the basis of that undertaking, the party concerned has indicated that it neither consents to nor opposes the making of the order now sought. 14 I therefore vary order 1 made in these proceedings on 8 July 2005 by omitting the words "save that" and inserting instead the word "including"; and also by omitting all words after "Corporations Act 2001" where secondly appearing. 15 Costs of this application are costs properly incurred in the provisional liquidation and are to be paid out of the company's assets accordingly. **********