Reported Decision : 61 ACSR 524 (2007) 25 ACLC 201 New South Wales Supreme Court CITATION : Ausino International Pty Ltd v Apex Sports Pty Ltd [2007] NSWSC 182 HEARING DATE(S) : 02/03/07 JUDGMENT DATE : 2 March 2007 JURISDICTION : Equity Division Corporations List JUDGMENT OF : Barrett J EX TEMPORE JUDGMENT DATE : 2 March 2007 DECISION : Interlocutory order refused CATCHWORDS : CORPORATIONS - winding up - application for winding up in insolvency pending - deed of company arrangement in place - judgment reserved on application directed towards termination of deed - application by plaintiff in both proceedings for order in winding up proceedings restraining dealings with property said to be property of company - application founded on s.467(1)(c) - where progressing of winding up proceedings precluded by s.444E - whether court may make order only capable of being made "on hearing a winding up application" LEGISLATION CITED : Corporations Act 2001 (Cth), ss.444E, 447A, 467(1), 467A Alati v Wei Sheung (2000) 34 ASCR 489 CASES CITED : Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270 Rapid Metal Developments (Australia) Pty Limited v Build Max Corporation Pty Limited [2000] NSWSC 1190 Ausino International Pty Limited - Plaintiff/Applicant PARTIES : Apex Sports Pty Limited - Defendant/First Respondent Jack Anthony Barry - Second Respondent FILE NUMBER(S) : SC 2683/05 COUNSEL : Mr A.G. Bell SC/Mr N. Kabilafkas - Plaintiff Mr A.P. Coleman - First Defendant and Mr Barry SOLICITORS : Henry Davis York - Plaintiff Kemp Strang - First Defendant and Mr Barry IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BARRETT J FRIDAY 2 MARCH 2007 2683/05 AUSINO INTERNATIONAL PTY LIMITED v APEX SPORTS PTY LIMITED JUDGMENT - On interlocutory application 1 I am dealing with an application for interim restraining orders that has arisen in somewhat unusual circumstances. 2 Yesterday afternoon, I concluded the hearing of a challenge to a deed of company arrangement executed by Apex Sports Pty Ltd. Judgment was reserved. The precise relief sought does not matter for present purposes. If granted, its effect will be to cause the deed of company arrangement no longer to be in force. 3 The plaintiff in those proceedings is Ausino International Pty Ltd. As things turned out, when the matter came on for hearing on Wednesday, all the defendants filed submitting appearances and counsel for Ausino alone adduced evidence and made submissions. 4 Also pending is an application by Ausino for an order for the winding-up of Apex Sports in insolvency. That application is based on a failure to satisfy a statutory demand. Hearing of the winding-up application has been deferred, pending my decision on the challenge to the deed of company arrangement. 5 After the hearing of the deed of company arrangement proceedings had concluded yesterday and with only counsel for Ausino present, Ausino made an application for interlocutory orders in both that proceeding and the winding-up proceeding, the orders being the same in each case. Upon the usual undertaking as to damages being given, I made those orders up to the conclusion of today, abridged time for service and directed a further return of the interlocutory processes this morning. 6 The orders relate to a sum of $379,299 under the control of Messrs Kemp Strang and held in their trust account, or a controlled moneys account. For ease of reference, I shall speak simply of a trust account. The orders restrained disposition of, or dealing with, those moneys. The orders were directed to Apex Sports, Mr Jack Barry, its sole director and controller, and Messrs Kemp Strang themselves. 7 When the matter came back before me this morning, Mr Bell SC and Mr Kabilafkas again appeared for Ausino, and there was an appearance by Mr Coleman of counsel for Apex Sports and Mr Barry. Mr Hedge appeared for Kemp Strang to indicate that that firm had no interest in the moneys or the orders sought, except insofar as there might be any lien for unpaid costs. The contest was therefore between Ausino, represented by Mr Bell and Mr Kabilafkas, and Apex Sports and Mr Barry, represented by Mr Coleman. 8 At the outset, certain threshold questions related to barriers erected by s.444E of the Corporations Act 2001 (Cth) were ventilated. In addition, it was accepted by Mr Bell that the interim orders made in the deed of company arrangement proceedings should be discharged. I so ordered, so that the restraints continue only in the winding-up proceedings. I also indicated that I would defer a decision on the threshold questions and hear evidence and argument on the matter as a whole, with the threshold matters being dealt with in this judgment. I shall come back to them in due course. 9 The sum of $379,299 held by Kemp Strang was intended to form part of a fund to be created under the deed of company arrangement for the benefit of unsecured creditors of Apex Sports. The deed itself, in the usual way, contemplates that the affected company, here Apex Sports, should supply the money for the deed fund, but, in the circumstances, including, in particular, Apex Sports apparently being insolvent, it appeared that part or perhaps most of the moneys would inevitably come from some external source. I am not sure that the evidence does much to identify that source. 10 The thesis propounded by Ausino upon the application was that the money in the Kemp Strang trust account belongs to, and is the property of, Apex Sports and that there is a threat that the money might be dissipated before the hearing of the winding-up application, if not protected in the meantime. Mr Coleman submitted that, on the evidence, Ausino has not shown any serious question that Apex Sports owns the money. He says that the true message to be gathered from the evidence is more likely to be that the money belongs to Mr Barry. 11 I turn to the evidence, which is wholly documentary. Eight documents are relevant. The first document is the deed of company arrangement itself. The deed, in clause 5.1(g), identifies a sum of $369,299 as one of seven items that Apex Sports is required to pay to the deed administrators within 121 days after the execution date, which was 27 June 2005. It is common ground, first, that this sum corresponds with the sum of $379,299, to which I have already referred (the difference of $10,000 seems to be referable to a sum for costs), and, second, that no such sum was paid by Apex Sports to the deed administrators within the 120 day period, or at all. 12 Clause 5.6 says that moneys paid to the deed administrators by Apex Sports are not refundable. 13 The second document is a letter from Kemp Strang to the deed administrators dated 29 October 2005. The letter is headed "Apex Sports Pty Limited (subject to deed of company arrangement)". It begins by referring to a telephone conversation and then says: "We confirm we have received into our trust account payment in the sum of $523,089.93, representing the following." 14 Then follow four numbered items, of which the last is "participating creditors' fund $369,299" and the second last is "petitioning creditors' costs $10,000". The letter also says: "We advise that the balance of the funds of $379,299.00 will be paid into a Controlled Money's Account. Pursuant to clause 5.6 of the Deed of Company Arrangement (' DOCA ') any monies paid into the Deed Fund are held for the benefit of the Administrators and those Creditors who become Participating Creditors in accordance with the Deed of Company Arrangement. Pursuant to clause 5.6(b) of the DOCA, any monies paid into the Deed Fund are not refundable. As a result of the current Application lodged by Ausino International Pty Limited (' Ausino '), our client was in a position to make payment of all monies required under the Deed Fund. However, our client is not prepared to pay the balance of the funds of $379,299.00 representing the Petitioning Creditor's costs and the fund available to the Participating Creditors, until the Application by Ausino has been heard and dismissed. Clearly if the company is not to obtain the benefit of a release from creditors pursuant to the Deed of Company Arrangement, the relevant payments will not be made. We shall write to the solicitors for Ausino advising them of the payment received, and requesting them to withdraw their current Application, to enable distribution to the creditors to be made." 15 The third document is a letter of 27 October 2005 from Kemp Strang to the then solicitors for Ausino, no doubt the letter foreshadowed at the end of the extract I have quoted from the letter to the deed administrators. The letter of 27 October 2005 is as follows: "We refer to previous correspondence herein. We advise that we currently hold, in our Trust Account, the following funds payable under the Deed of Company Arrangement: 1. Petitioning Creditor's costs (estimate) $10,000.00; 2. Participating Creditor's fund $369,299.00. The balance of funds payable under the Deed of Company Arrangement have, to date, been paid. Accordingly, the proceedings commenced by your client as against Apex Sports Pty Limited (subject to Deed of Company Arrangement) (' Apex Sports '), are currently preventing distribution of monies to the creditors of the company. Clearly this is prejudicing all of the other creditors of Apex Sports. Therefore, please advise by 5.00 pm 28 October 2005 as to whether your client will withdraw its current application to enable the distribution to be immediately made to creditors, and the Deed of Company Arrangement effectuated. If your client is not prepared to withdraw the application, the relevant funds will be deposited into a Controlled Money's Account. We are instructed that once your client's proceedings are dismissed, funds will be paid to the deed administrators for distribution to creditors. No doubt the first defendant to the proceedings will reserve its rights as against your client regarding any losses that are suffered by creditors as a result of your client's current proceedings." 16 The fourth document is a document signed by Mr Barry, which is undated. It is headed "Irrevocable direction to pay". Again I incorporate the whole by reference. It is in these terms: "I, JACK ANTHONY BARRY , director of Apex Sports Pty Ltd (Subject to Deed of Company Arrangement) ACN 083 627 203 (' Apex Sports ') hereby irrevocably authorise and direct Kemp Strang Solicitors to pay to Ronald John Dean-Willcocks and Adam Shepard, the Deed Administrators of Apex Sports, the sum of $380,645,90, (which is the Deed Fund payable by Apex Sports pursuant to the Deed of Company arrangement dated 27 June 2005) upon dismissal of the NSW Supreme Court proceedings, Equity Division No. 3883 of 2005, commenced by Ausino International Pty Ltd." 17 The fifth document is a report by the deed administrators to creditors dated 10 November 2006. The administrators refer in their report to reports as to affairs prepared by Mr Barry as at 30 September 2006 in respect of a number of companies, including Apex Sports and a company called Apex Footwear. These reports as to affairs are annexed to the deed administrators' report. The document relating to Apex Footwear records an asset of that company described as "Cash advanced to Apex Sports P/L, Deed Fund in Kemp Strang trust A/C", to which a figure of $379,299 is ascribed. The document relating to Apex Sports itself, however, records no corresponding liability. 18 Elsewhere in the report of 10 November 2006 the deed administrators say: "We think it is important to emphasise that the moneys currently held by Kemp Strang for distribution pursuant to the DOCA ($369,299) will not be available to the liquidators in the event that the company is placed into liquidation and is not an asset of Apex Sports." 19 The sixth document is a notice of appearance by Mr Barry in the deed of company arrangement proceedings filed on 15 July 2005, which shows that Kemp Strang were his solicitors. There has been no record of any change of solicitors. 20 The seventh and eighth documents are statutory declarations made by Mr Barry on 8 June 2005 and 10 November 2006, setting out details of his assets and liabilities. The first discloses assets of less than $40,000 and very considerable liabilities. The second discloses assets of less than $50,000 and again very considerable liabilities. Neither refers to any cash asset of the order of $360,000 or $370,000, or to any sum held in the Kemp Strang trust account. 21 It is submitted, on behalf of Ausino, that on this evidence there is an arguable case that the money in the trust account is owned by Apex Sports. Particularly telling is the statement in the report as to affairs of Apex Footwear (for the content of which Mr Barry must be responsible), which refers clearly to a sum of the relevant magnitude advanced by Apex Footwear to Apex Sports and held in the Kemp Strang trust account. 22 Some support for that view is derived from the fourth document, being the "Irrevocable direction to pay". That document starts: "I, Jack Anthony Barry, director of Apex Sports Pty Limited (subject to deed of company arrangement)...hereby irrevocably direct." 23 If Mr Barry were speaking for himself, he would not need to describe himself as a director of the company. The document is consistent with his giving instructions to Kemp Strang on behalf of the company. The fact that they were his own solicitors is not persuasive either way. 24 The two Kemp Strang letters of October 2005 do not throw any real light on the question of ownership of the moneys. The only slight glimmer is a reference, in one of the letters, to "the first defendant in the proceedings", that is Apex Sports, when one might perhaps have considered more natural the words "our client", if, in reality, it was on behalf of Apex Sports that the solicitors were writing. This is the Kemp Strang letter to Ausino's former solicitors. 25 It is true that the deed administrators seem to say, in their November 2006 report, that the money in the trust account is not an asset of Apex Sports, but that can only reflect something they have been told and, since Mr Barry seems to be the guiding mind and will of Apex Sports, as well as associated companies, I assume, including Apex Footwear, it is perhaps likely that the deed administrators obtained that information, or version of reality, from Mr Barry. 26 Mr Barry, of course, has had his counsel air, on this application, the proposition, based mainly on the Kemp Strang letters and the notice of appearance showing them to be his solicitors, that the money belongs to him. Yet his own statements of assets and liabilities made in June 2005 and November 2006, in such a way as to attract sanctions for perjury if wilfully wrong, show neither ownership of $360,000 or $370,000 in the trust account of Kemp Strang nor, as far as the earlier date goes, any source from which such a sum could have been deposited into the trust account. 27 I am satisfied, on this evidence, that there is a serious question to be tried on the claim made by Ausino that the moneys in the Kemp Strang trust account belong to, and are an asset of, Apex Sports, the company in respect of which Ausino's winding-up application is pending. 28 That leads to the balance of convenience, or the balance of hardship. In considering that matter, I observe at once that Kemp Strang themselves do not make any claim that prejudice will flow from a requirement that they continue to hold the moneys. 29 Moving beyond that, I note that the moneys have been in the trust account since October 2005 and that the line taken by what I might call, in a broad sense, the Barry interests, has been, at all times since then, that the moneys would not be contributed to the deed fund unless the proceedings challenging the deed of company arrangement were withdrawn or dismissed. 30 The additional message was that, if Apex Sports did not obtain the benefit of release by creditors, the funds would not be available. The deed of company arrangement proceedings have now been heard. Judgment is reserved. It should not be too long before the outcome is known. Nothing in the evidence shows any statement by any putative owner of the funds that they will remain where they are until judgment in the deed of company arrangement proceedings is given. 31 I accept that, because of the point those proceedings have reached, there are grounds for an apprehension that the funds may be removed, so that, if they are truly the property of Apex Sports, they may be put beyond the reach of any liquidator who might be appointed. 32 The owner of the funds has been content to see them lying in the trust account, or probably earning interest in a controlled moneys account, for sixteen months. No prejudice is said to be likely if they remain there for a few more weeks. 33 The final point is that figures appearing in the evidence suggest that, if the funds are an asset of Apex Sports, they will probably be swallowed up wholly, or very substantially, by the secured creditor, Mrs Barry. So, it is said that it makes no difference to the general body of creditors. That, if correct, is really beside the point. The liquidator could well pursue recovery actions and there could be returns to unsecured creditors, which would otherwise be diminished. 34 On the whole, the balance of convenience favours Ausino, as plaintiff, and, according to ordinary equitable principles, an interlocutory injunction would be granted to preserve the status quo if this were a case in which the ownership claims of Apex Sports were in issue. 35 But the application is made in winding-up proceedings. That leads me to the procedural issues. Ausino does not invoke the ordinary equitable jurisdiction of the court, whether of the Mareva variety or otherwise. It relies squarely and deliberately on s.467(1)(c) of the Corporations Act; " Court's powers on hearing application (1) Subject to subsection (2) and section 467A, on hearing a winding up application the Court may: (a) dismiss the application with or without costs, even if a ground has been proved on which the Court may order the company to be wound up on the application; or (b) adjourn the hearing conditionally or unconditionally; or (c) make any interim or other order that it thinks fit." 36 The qualifications concerning sub-s.(2) and s.467A appearing at the beginning of s.467(1) are irrelevant in this case. The first point to note is, therefore, that I have not yet embarked on the hearing of Ausino's winding-up application. Indeed, if Ausino is unsuccessful in its challenge to the deed of company arrangement, its winding-up proceedings will probably become a dead letter and may well never proceed to a hearing, at least beyond a point of formal dismissal. But that, it is submitted on behalf of Ausino, does not really matter, because s.467(1), referring, as it does, to "on hearing a winding-up application", warrants an interpretation somewhat wider than the literal meaning of those words would suggest. 37 Reliance is placed in that respect on two decisions of the present Chief Judge in Equity, being Alati v Wei Sheung (2000) 34 ASCR 489 and Rapid Metal Developments (Australia) Pty Limited v Build Max Corporation Pty Limited [2000] NSWSC 1190. 38 In the Alati case, his Honour was hearing together two sets of proceedings, one aimed at setting aside certain mortgages under s.37A of the Conveyancing Act and the other a winding-up application based on the insolvency ground or, in the alternative, the just and equitable ground. In the latter connection, Young CJ in Eq considered a preliminary point about the plaintiff's standing to bring the winding-up proceedings. He then acceded to an application to make what was, in effect, an asset preservation order. 39 Having noted a submission by Mr Newlinds of counsel that s.467(1)(c) created the necessary jurisdiction, his Honour went on to consider the scope of the provision. 40 His Honour referred to some older cases which were not squarely in point, including a Canadian case in which an appeal court thought that the equivalent section could not have been relied on by thue trial judge but could not identify any other bases. Young J also seemed to be of the view that the statutory power was available "when the case is in the list for consideration and not just at the time when the court is considering whether to make the actual order". 41 The formulation here refers to the winding-up application being in the list for consideration and indicates that the availability of s.467(1)(c) is not confined to the point at which the court is, as it were, poised to decide the winding-up application. 42 Young J extended this position somewhat in the Rapid Metal case, where an order was made based explicitly on s.467(1)(c), in circumstances where, at least so far as the judgment indicates, the winding-up application may not have been even "in the list for consideration". The judgment simply begins: "This is an application under s.467(1) of the Corporations Law for an injunction to prevent the defendant company (the "Company") from dealing with funds that it is about to receive until the Court can deal with an application to substitute the present applicant as the petitioner to wind up the Company, or, alternatively, until the Company is wound up, or the application to wind up is dismissed." 43 In the course of that judgment, Young J referred to Alati v Wei Sheung, but not to the timing constraints he had there identified. 44 I am bound to say that, if the Rapid Metal case implies that s.467(1)(c) creates some general interlocutory jurisdiction in winding-up proceedings, it proceeds on a view of the legislation which does not seem to me to be open on the words "on hearing a winding up application". 45 In the present case, the winding-up application has not come on for hearing. It has been deferred because of the significance of the pending outcome in the deed of company arrangement proceedings. But the actual sequence of events is not the only factor. There are, in the present context, particular statutory directives that must be observed. A deed of company arrangement is in force. Section 444E therefore operates. By force of s.444E(1), the subsequent subsections of s.444E apply to a person bound by the deed and to continue to apply to the person until the deed terminates. 46 That point has not arrived in this case. Ausino, being an unsecured creditor of Apex Sports, is a person bound by the deed. This is the effect of s.444E(1). By force of s.444E(2)(b), Ausino "cannot" - that is the word Parliament has chosen – "cannot" proceed with its winding-up application. That embargo is absolute. The court cannot grant leave to cause it to be dispensed with. By force of s.444E(3), Ausino "cannot", without the court's leave, begin or proceed with a proceeding against the company, or in relation to any of its property. 47 In seeking a restraining order with respect to the moneys in the Kemp Strang trust account, Ausino bases its claim wholly and solely on s.467(1)(c). There was debate before me as to whether, by making an application under that section, Ausino was proceeding with its winding-up application (that being the activity made unavailable absolutely by s.444E(2)(b)) or whether it was beginning some new and different proceeding against the company, or in relation to its property, which, by virtue of s.444E(3)(a), cannot be done without leave. 48 In the end, I do not think it is necessary to decide between these alternative possibilities. The reality is that, because of s.444E(2)(b), it is not possible, according to the statute, for the winding-up proceeding to be proceeded with at this time. The prohibition upon the applicant's proceeding with the winding-up application must carry with it a prohibition upon the court's hearing such an application. The court could not entertain and hear something which the relevant litigant was forbidden by statute to proceed with. 49 It must follow that, even allowing for the type of latitude which commended itself to Young J in the cases which I have mentioned, I cannot regard myself as actively or constructively engaged in a situation described by the opening words of s.467(1), that is, "on hearing a winding-up application". The conclusion, therefore, must be that the jurisdiction Ausino seeks to invoke in applying for the restraining order is not available. 50 It was submitted that s.447A might be employed to overcome this. More precisely, it was submitted that, if s.444E(2) was found to be an obstacle, a s.447A order might be made. I am not satisfied, however, that any such order would be of utility. The s.447A jurisdiction is wide, as the High Court pointed out in Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270. It would, in my view, support an order modifying the operation of s.444E(2) to enable a winding-up application to be proceeded with, even though a deed of company arrangement was in place. But an order of that kind, in this case, would achieve nothing. The fact is that the winding-up application has not come on for hearing. It has been deliberately postponed. No-one yet knows when the hearing to which s.467(1)(c) refers will eventuate, or even if it will eventuate at all, except, perhaps, by way of formal dismissal. It is for that reason that I say that a s.447A order is of no utility. 51 In the result, therefore, and notwithstanding my findings on a serious question to be tried and balance of convenience, the application for interlocutory relief advanced by Ausino, and based squarely and deliberately on the statutory jurisdiction created by s.467(1)(c), must be dismissed. ********** 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.