New South Wales Supreme Court CITATION : Free & Ors [2010] NSWSC 1079 HEARING DATE(S) : 15/09/10, 16/09/10 JUDGMENT DATE : 17 September 2010 JURISDICTION : Equity Division Corporations List JUDGMENT OF : Barrett J DECISION : See appendix CATCHWORDS : CORPORATIONS - external administration - partner in firm holds office as liquidator and adminisrator of deed of company arrangement - partner resigns from firm - need to appoint replacement liquidator or administrator - advantages in keeping the administration within the firm - efficient course is for court to make appointments - various forms of appointment depending on circumstances - syncronisation of half-yearly reports LEGISLATION CITED : Corporations Act 2001 (Cth), ss 447A, 449D(1), 449D(2), 473(1), 473(7), 502, 513, 530, 539(1), 1322(4)(d), 1322(6)(c) Supreme Court (Corporations) Rules 1999, rule 7.1 CATEGORY : Principal judgment Condon v Watson [2009] FCA 11; (2009) 174 FCR 314 Dean-Willcocks; re Militto's Transport Pty Ltd [2006] FCA 1792; (2006) 61 ACSR 356 Emerton v Referral Marketing Services Pty Ltd [2009] NSWSC 738 CASES CITED : Re A & C Supplies Ltd [1998] BCC 708 Re McGrath [2005] NSWSC 506; (2005) 54 ACSR 55 Re Vouris [2004] NSWSC 384; (204) 49 ACSR 543 Re Wily [2003] NSWSC 1260; (2003) 49 ACSR 94 Stewart William Free - First Plaintiff PARTIES : Raymond George Tolcher - Second Plaintiff Bradley John Tonks - Third Plaintiff FILE NUMBER(S) : SC 2010/309324 COUNSEL : Ms N K Ben - Plaintiffs SOLICITORS : Sparke Helmore - Plaintiffs IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST BARRETT J FRIDAY, 17 SEPTEMBER 2010 2010/309324 STEWART WILLIAM FREE & 2 OTHERS REASONS FOR JUDGMENT Background 1 On 16 September 2010, I made orders set out at in the appendix, indicating that I would give brief reasons at a later time, as I now do. 2 The need for the orders arose from the circumstance that Mr Free, a partner of Lawler Partners Limited Partnership, had given notice of his resignation from the firm while holding several insolvency appointments, in particular, appointments as liquidator in court-ordered windings up, appointments as administrator of deeds of company arrangement and appointments as liquidator in creditors voluntary windings up. 3 In each court-ordered winding up, Mr Free was the sole liquidator. In the deed of company arrangement and creditors voluntary winding up cases, he was one of two concurrent appointees. 4 In consequence of his resignation, Mr Free wished to relinquish the several appointments and to see other persons installed in his place. It was Mr Free's opinion that, because the work in the several administrations had been done within Lawler Partners and firm personnel other than himself were therefore familiar with them and the issues they involve, it was desirable that his replacement be a qualified person within Lawler Partners. The proposal 5 The proposal brought to the court was that (a) in each case in which Mr Free was liquidator in a winding up by the court, he should resign and the court should appoint Mr Tolcher of Lawler Partners in his place; and (b) in each case of deed of company arrangement or creditors voluntary winding up in which Mr Free was administrator or liquidator together with another member of the firm, matters should be re-arranged so that Mr Tolcher and Mr Tonks of Lawler Partners became the ongoing office holders. 6 The court had no reservation of principle about these proposals. There is a clear benefit to the respective administrations in ensuring continuity within the one firm: see Condon v Watson [2009] FCA 11; (2009) 174 FCR 314; Re A & C Supplies Ltd [1998] BCC 708. In cases of joint and several appointment, there is a clear benefit in having another member of the firm join with Mr Free's co-appointee whose appointment will continue. From a cost point of view, it is beneficial that what is essentially an administrative re-arrangement necessitated by Mr Free's retirement from the firm be effected through a short application to the court, even though some of the charges might have been effected through resolutions of creditors. 7 It was, however, necessary to give attention to some mechanical matters. Appointment as sole liquidator by the court 8 In the cases of sole appointment of Mr Free as liquidator in windings up by the court, the liquidator's ability to resign comes from s 473(1) of the Corporations Act 2001 (Cth): "A liquidator appointed by the Court may resign or, on cause shown, be removed by the Court." 9 The timing of the resignation is governed by rule 7.1 of the Supreme Court (Corporations) Rules 1999: "(1) A liquidator appointed by the Court who wishes to resign office must file with the Registrar, and lodge with ASIC, a memorandum of resignation. (2) The resignation takes effect on the filing and lodging of the memorandum." 10 It is thus clear that the vacancy arising from resignation does not occur until the relevant notice has been filed with the regulator of the court and lodged with ASIC. Only then is there a "vacancy" as referred to in s 473(7): "A vacancy in the office of a liquidator appointed by the Court must be filled by the Court." 11 Mr Free had already signed the necessary memoranda of resignation when the matter came before the court. Each was dated 14 September 2010. On the basis of Mr Free's statement of his own position in his affidavit (that is, that he intended to complete his separation) and having regard to the approach taken to s 473(7) in decided cases (see, in particular, Re Wily [2003] NSWSC 1260; (2003) 49 ACSR 94; Re Vouris [2004] NSWSC 384; (2004) 49 ACSR 543; Re McGrath [2005] NSWSC 506; (2005) 54 ACSR 55; Dean-Willcocks; re Militto's Transport Pty Ltd [2006] FCA 1792; (2006) 61 ACSR 356; Emerton v Referral Marketing Services Pty Ltd [2009] NSWSC 738), it was seen as appropriate to make an order having immediate effect but expressed to fill the vacancy to arise upon completion of the rule 7.1 steps. Appointment as one of two administrators of a deed of company arrangement 12 I turn next to the deed or company arrangement cases. In each of those, as I have said, Mr Free held office as administrator of the deed together with Mr Tolcher. 13 As Lindgren J pointed out in Condon v Watson (above) at [96], s 449D(1) permits one of multiple administrators of a deed of company arrangement to resign and, upon such resignation, the remaining administrator or administrators will continue in office and may function accordingly. 14 Lindgren J was not required to address the question of replacing one of several deed administrators. Nor, it seems to me, does any provision of the Act deal with that matter. Section 449D(2) confers a power of appointment on the court where "no administrator of the deed is acting". That, of course, is not the case where one of several resigns leaving at least one other still in office. 15 I considered but rejected the possibility that s 449D(2) shows an intention that, where several persons are appointed as deed administrators and one later resigns, the other or others should carry on without being joined by anyone else so that, for example, if, as here, there were originally two and one resigns, the second is then forced to act alone. 16 Multiple appointments have practical advantages. Appointees able to act severally can divide tasks between them. A multiple appointment also takes care of unavoidable absences and can be the source of checks and balances that are beneficial to prudent administration. 17 I was therefore persuaded that the court should, through resort to s 447A, create an express power for it to replace Mr Free with Mr Tonks in the cases in question (so that Mr Tolcher and Mr Tonks were together deed administrators) and, having thus created the necessary machinery, exercise the power by appointing Mr Tonks in place of Mr Free. Appointment as one of two liquidators in a creditors voluntary winding up 18 In each of these cases, Mr Free was originally appointed together with another member of the firm (most often Mr Tolcher or Mr Tonks). The proposal brought to the court was that Mr Free should, in each case, be replaced by one of Mr Tolcher and Mr Tonks. 19 In each of these cases, the second original appointee would continue following any resignation by Mr Free. This, as Lindgren J pointed out in Condon v Watson (above), at [74] to [76], is the effect of s 530 of the Corporations Act as amended by the Corporations Amendment (Insolvency) Act 2007 (Cth). 20 There then remained, however, a question about how a second liquidator would be installed. Section 502 allows the court to make an appointment only where "no liquidator is acting". The problem was thus the same as that arising under s 449D(2) (see paragraph [14] above). 21 The solution was to proceed along the lines indicated in Re Vouris (above) by removing both existing liquidators under s 503 and appointing Mr Tolcher and Mr Tonks under the same section. This was on the basis that Mr Tolcher and Mr Tonks should be regarded as "another liquidator" when compared with, say, Mr Free plus Mr Tonks (the comparison is never with Mr Tolcher plus Mr Tonks); and that sufficient "cause shown" arises from the benefits and efficiencies outlined at paragraph [16] above. Compliance with s 539(1) 22 Section 539(1) requires a liquidator to lodge with ASIC accounts and a statement relating to the position in the winding up. The requirement applies regardless of the type of winding up: see s 513. The lodgement is to be made at intervals s 539(1) prescribes. 23 A person who ceases to act as liquidator must make a s 539(1) lodgment within one month after ceasing to act. In the case of a newly appointed liquidator, there must be a lodgment within one month after six months have elapsed from appointment. 24 In the cases of replacement of joint and several liquidators (paragraphs [18] to [21] above), application was made for a variation of the time for compliance with s 539(1). There was no like application in the cases in which Mr Free was sole liquidator. 25 The application for an order changing the timing requirements in the joint liquidator cases was made under s 1322(4)(d) of the Corporations Act. The application was on the footing that Mr Free and the original co-liquidator should not have to make a lodgment within one month after their removal but, rather, at the time at which their lodgment would have been due had they not been removed; also that the newly appointed liquidators (that is, Mr Tolcher and Mr Tonks) should be subject to that same deadline, rather than having to wait for six months from appointment and then lodge within the following period of one month. 26 The first aspect entails, in s 1322(4)(d) terms, "extending the period for doing any act, matter or thing … under this Act"; the second involves "abridging the period for doing such an act matter or thing". Power for the court to make the adjustments was therefore seen to be exercisable, subject to s 1322(6)(c) that requires the court to be satisfied that the extension or abridgment of time sought will not claim substantial injustice to any person. 27 Because in the vast majority of cases the second of the original liquidators will continue despite Mr Free's departure, there can be reasonable assurance of on-going attention to the matters relevant to s 539(1) compliance. This is emphasised by the fact that all office holders have been part of the one firm. For the original liquidators to be required to make a lodgment within one month after ceasing to hold office and for the new appointees (of whom one is, in reality, a continuing liquidator in all but a very few cases) to go on to a six monthly cycle different from that already applying will involve unnecessary work for no apparent benefit. 28 The desirable course was seen to be that the existing cycle be maintained, with all of Mr Free, the existing co-liquidator and the new appointee reporting at the end of the six months period now current and the two new liquidators then continuing on the six monthly cycle from that point. 29 There is no basis on which this can be seen to entail "substantial injustice" to anyone. Appendix 1. That, pursuant to section 473(7) of the Corporations Act 2001(Cth), the vacancies which will arise upon the resignation of the First Plaintiff as the Court-appointed liquidator of the companies listed in Schedule 1 below, following his filing with the Registrar and lodgement with the Australian Securities and Investments Commission of a memorandum of resignation on 17 September 2010 in accordance with rule 7.1 of the Supreme Court (Corporations) Rules 1999 , be filled by the Second Plaintiff: Schedule 1 Claremont Building Pty Ltd ACN 095 009 993 Focus Administration Services Pty Ltd ACN 060 413 710 Inglas Pty Ltd ACN 106 495 265 Isa Macs Pty Ltd ACN 104 898 713 Power Super Sales Pty Ltd ACN 126 323 064 Shoalpoint Pty Ltd ACN 071 323 585 Sobay Pty Ltd ACN 109 382 121 Southern Star Interiors Pty Limited ACN 100 053 236 Wingo Fong Pty Ltd ACN 071 400 970 2. That, pursuant to section 447A of the Corporations Act 2001 (Cth), Part 5.3A of that Act is to operate in relation to each of the two companies listed in Schedule 2 to Order 3 below as if it empowered the Court to appoint a new administrator of the deed of company arrangement of the company where one of two administrators of the deed of company arrangement resigned. 3. That, pursuant to Part 5.3A of the Corporations Act 2001 (Cth) as it applies by virtue of Order 2 above, the Third Plaintiff be appointed as administrator of the deeds of company arrangement for the companies listed in Schedule 2 to this Order 3 jointly and severally with the Second Plaintiff and in place of the First Plaintiff. Schedule 2 C2C Developments Pty Ltd ACN 099 195 909 Shannon Trading Co Pty Ltd 083 871 498 4. That pursuant to section 503 of the Corporations Act 2001 (Cth) in respect of each of the companies listed in Schedule 3 below the First Plaintiff and the persons named in the column 'Joint Appointee' in Schedule 3 to this Order 4 be removed as liquidators of the companies listed in that Schedule 3 and pursuant to section 502 of the said Act in respect of each such company the persons named in the column 'Joint Appointee' and 'Incoming Appointee' in Schedule 3 be appointed as the liquidators of the companies in Schedule 3, jointly and severally. Schedule 3 Company Name Joint Appointee Incoming Appointee ACN 001 647 221 Pty Ltd Bradley Tonks Raymond George Tolcher ACN 001 647 221 ACN 124 529 479 Pty Ltd Bradley Tonks Raymond George Tolcher ACN 124 529 479 F.S.O. Australia Pty Limited ACN 083 084 888 Bradley Tonks Raymond George Tolcher Safix (NSW) Pty Ltd Bradley Tonks Raymond George Tolcher ACN 107 310 172 A.C.S. Now Pty Ltd Christopher Wykes Raymond George Tolcher ACN 117 904 453 B101 Pty Ltd ACN 099 359 654 Christopher Wykes Raymond George Tolcher Kirk Corporation Pty Ltd John Vouris Bradley Tonks ACN 119 340 000 Adhere Concrete Coatings Pty Ltd ACN 116 166 600 Raymond Tolcher Bradley Tonks Age Mining Services Pty Ltd ACN 073 402 418 Raymond Tolcher Bradley Tonks Auscaff Pty Ltd Raymond Tolcher Bradley Tonks ACN 107 347 491 Austrol Industries Pty Limited ACN 050 107 492 Raymond Tolcher Bradley Tonks B M Gorman Plumbing Pty Limited ACN 098 624 232 Raymond Tolcher Bradley Tonks Barns Street Pty Ltd Raymond Tolcher Bradley Tonks ACN 104 828 426 BG Plumbing Group Pty Ltd ACN 103 335 379 Raymond Tolcher Bradley Tonks Comstec Constructions Pty Ltd ACN 108 278 511 Raymond Tolcher Bradley Tonks D & D Publishing Pty Limited ACN 102 600 475 Raymond Tolcher Bradley Tonks D & J Howes Pty Ltd Raymond Tolcher Bradley Tonks ACN 122 503 342 Express Gyprocking Pty Ltd ACN 115 083 246 Raymond Tolcher Bradley Tonks Forte Health Pty Ltd Raymond Tolcher Bradley Tonks ACN 124 668 113 Good Annie's Cleaning Service Pty Ltd ACN 114 118 400 Raymond Tolcher Bradley Tonks Hunter Lasertek Pty Limited ACN 081 300 763 Raymond Tolcher Bradley Tonks Keith F. McParland Re-Inforcing Pty Ltd Raymond Tolcher Bradley Tonks ACN 093 528 057 Lakelle Pty Ltd Raymond Tolcher Bradley Tonks ACN 108 026 820 M & D Coastal Transport Pty Ltd ACN 122 295 872 Raymond Tolcher Bradley Tonks McEwans Architectural Windows & Doors Pty Ltd Raymond Tolcher Bradley Tonks ACN 082 163 004 Meridian Stainless Pty Limited ACN 090 087 997 Raymond Tolcher Bradley Tonks Newcastle's House of Kitchens Pty Limited Raymond Tolcher Bradley Tonks ACN 003 228 484 Pacific Multihulls Pty Limited ACN 131 554 688 Raymond Tolcher Bradley Tonks Palmer Bruyn 1 Pty Ltd Raymond Tolcher Bradley Tonks ACN 124 558 425 Reliance Cleaning Group Pty Ltd ACN 098 170 784 Raymond Tolcher Bradley Tonks Reliance Integrated Solutions Pty Limited Raymond Tolcher Bradley Tonks ACN 111 766 673 Reliance Security Group Pty Ltd ACN 080 311 824 Raymond Tolcher Bradley Tonks RMS Glazing (NSW) Pty Limited ACN 062 161 040 Raymond Tolcher Bradley Tonks Southern BE Pty Limited Raymond Tolcher Bradley Tonks ACN 053 537 876 Steel River Manufacturing Pty Limited ACN 081 300 790 Raymond Tolcher Bradley Tonks Sun Scaffolds Pty Ltd Raymond Tolcher Bradley Tonks ACN 115 824 256 The Gardens Sports Club Ltd Raymond Tolcher Bradley Tonks ACN 001 437 574 Troy Horse Pty Ltd Raymond Tolcher Bradley Tonks ACN 108 835 178 Two Professors Pty Ltd Raymond Tolcher Bradley Tonks ACN 128 743 304 Work Safe Pty Limited Raymond Tolcher Bradley Tonks ACN 121 403 709 5. That, pursuant to section 1322(4)(d) of the Corporations Act 2001 (Cth), the period for lodgement of the liquidators' accounts and statements prescribed by section 539 of the Act be extended in the case of each company referred to in Schedule 3 to Order 4 above so that: (a) the period within which the liquidators in the creditors' voluntary liquidation removed pursuant to the order 4 above have to lodge the form prescribed by s 539(1) of the Act after they have ceased to act as liquidators be extended to the date they would otherwise have had to lodge that form had they not ceased to act as liquidators; and (b) the period within which the liquidators appointed pursuant to the order 4 above have to lodge the form prescribed by section 539(1) be abridged to the date on which the removed liquidators have to lodge that form pursuant to paragraph (a) of this Order 5." ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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