Supreme Court New South Wales Medium Neutral Citation: In the matter of Cosmopolitan Constructions Pty Limited (in liquidation) [2013] NSWSC 780 Hearing dates: 14 May 2013 Decision date: 14 May 2013 Jurisdiction: Equity Division - Corporations List Before: Black J Decision: Declaration that the defendant has surrendered any security it may have held over any of the property of the company. Catchwords: CORPORATIONS - winding up - liquidators - liquidators seek direction or declaration from the Court that the defendant has surrendered any security it may have held over any property of the company - whether the secured creditor, by voting in respect of their whole debt or claim, must be taken to have surrendered their security. Legislation Cited: Corporations Act 2001 (Cth) ss 511, 554E Corporations Regulations 2001 (Cth) reg 5.6.24, 5.6.24(3) Cases Cited: - Provident Capital Ltd v Kelso Supplies Pty Ltd [2008] FCA 868; (2008) 66 ACSR 643 - Re Parbery & Ors (as liquidators of Trio Capital Ltd (in liq)) [2012] NSWSC 597; (2012) 88 ACSR 700 - Re Purchas (as liquidator of Astarra Asset Management Pty Ltd (in liq)) [2011] NSWSC 91 - Woodgate v Garard Pty Ltd [2010] NSWSC 508; (2010) 78 ACSR 468 - Young v ACN 081 162 512 Pty Ltd [2005] NSWSC 139; (2005) 52 ACSR 629 Category: Interlocutory applications Parties: Nicholas Craig Malanos and Christopher Damien Darin as liquidators of Cosmopolitan Constructions Pty Limited (in liquidation) (Plaintiffs) Crane Distribution Limited (Defendant) Representation: Counsel: J. Darams (Plaintiffs) Solicitors: Eakin McCaffery Cox (Plaintiffs) File Number(s): 2013/57808 Judgment - ex tempore 1Mr Craig Malanos and Mr Christopher Darin, as liquidators of Cosmopolitan Constructions Pty Limited (in liquidation) ("Company") seek alternatively a direction or a declaration that Crane Distribution Pty Limited ("Crane") has surrendered any security it may have held over any property of the company. 2Mr Darams, who appears for the liquidators, has properly drawn attention to the fact that there might at one point have been a question as to whether the proceedings had been served upon Crane, so far as service had been effected on solicitors who have been advising for Crane in respect of the relevant issues, but not upon Crane personally. In my view, it is not necessary to determine that issue, because Crane, by its solicitors, has advised that it has been indemnified by its credit insurer and does not intend to take any interest in the proceedings. It is, in these circumstances, clear that Crane is aware of the proceedings, is aware of the opportunity to be heard in respect of the proceedings, and has reached a conscious decision not to participate in them. In these circumstances, informal service upon Crane can be treated as effective: Woodgate v Garard Pty Ltd [2010] NSWSC 508; (2010) 78 ACSR 468 at [27]. I am reinforced in that view because there has also been correspondence between solicitors for the liquidators and Crane's credit insurer in respect of the proceedings, so it appears that Crane's credit insurer is also aware of the Liquidator's proposed application to the Court. 3Turning now to the background facts to the application, Messrs Malanos and Darin were appointed as liquidators of the Company in a voluntary winding-up on 4 November 2011. A first meeting of creditors was held on 16 November 2011 and a resolution was put for the removal of Messrs Malanos and Darin as liquidators. Mr Malanos acted as chairman at the meeting and initially called for a vote on the voices and voted proxies in the manner described in his affidavit. The resolution for removal of the liquidators was not passed on the voices and, after discussion about the resolution and issues in respect of the process, Mr Malanos indicated that the matter was finalised unless any creditor demanded a poll. A person who held a proxy for Crane then demanded the poll, and the resolution was again defeated on a poll, by a small percentage of votes by value and a larger number of votes by number. 4The resolution, and the circumstances in which votes were taken, is relevant because Crane had initially claimed an equitable charge over land owned by the Company pursuant to an agreement dated 27 March 2003, and had lodged a caveat over that land on that basis. Mr Malanos accepts in his affidavit that the agreement would in normal circumstances have given rise to a charge over the company's property. He indicates the view that Crane, by voting the full amount of its debt at the meeting of creditors on 16 November 2011, had surrendered its security including its charge over the land. 5I should at this point note that the position taken by Crane at that meeting does not, on one view, seem to be an accident. By its initial proof of debt in the liquidation, Crane had indicated that it claimed a debt of $465,358.06, and identified the fact that it held security by caveats over property, which it valued at nil. Crane's valuing its security at nil provides content its later conduct in voting in a manner which might have amounted to a surrender of its security. It is clear, from the records of voting at the meeting on 16 November 2011, that Crane did vote the full amount of its debt, namely, $465,358.06, in support of the resolution to remove the Liquidators. 6Regulation 5.6.24(3) of the Corporations Regulations 2001 (Cth) deals with voting by secured creditors in a liquidation. That regulation provides that, if a secured creditor votes in respect of his or her whole debt or claim, the creditor must be taken to have surrendered his or her security unless the Court on application is satisfied that the omission to value the security has arisen from inadvertence. The operation of this regulation was considered in Young v ACN 081 162 512 Pty Ltd [2005] NSWSC 139; (2005) 52 ACSR 629, where Gzell J held that the conduct of a secured creditor in not including a value of her security in her statement of particulars of her debt and in then voting her debt on a poll at a creditors' meeting amounted to a surrender of the security for the purposes of reg 5.6.24. His Honour noted that the relevant provision was "in mandatory terms" and that it made no distinction between a vote on a substantive issue and a vote on a non-substantive one. A resolution for removal of a liquidator could hardly be characterised as a non-substantive matter in any event. 7Mr Darams has properly drawn my attention to the decision of Jacobson J in Provident Capital Ltd v Kelso Supplies Pty Ltd [2008] FCA 868; (2008) 66 ACSR 643, where Jacobson J held that a secured creditor's conduct in voting, on the voices, without providing a valuation, did not amount to an unequivocal election to surrender the security. I would read that decision as directed to the position where a vote is taken, first, on the voices and, second, the creditor gives no indication of the amount of its debt which is being voted. Neither aspect of that decision is present here, since the vote was ultimately taken, for a second time, on a poll and Crane voted the entire amount of its debt on the poll. 8I should pause here to note that Crane's omission to value the security in this case is consistent with its initial proof of debt and Crane did not appear to contend that any omission to value the security arose from inadvertence. In these circumstances, it seems to me that the conduct of Crane in voting its debt on a poll amounted to a surrender of the security for the purposes of regulation 5.6.24(3) of the Corporations Regulations. Section 554E of the Corporations Act 2001 (Cth) in turn provides that, where Crane has surrendered its security for the benefit of creditors generally, it will be entitled to prove for the whole of the amount of its debt in the winding-up. The provisions therefore have a fair operation, so far as Crane, which is no longer treated as a secured creditor in respect of the debt, as the opportunity to obtain the benefit of proof for the whole of the debt in the winding-up. 9The liquidators raised the possibility that Crane's conduct in valuing its security at nil on the proof of debt might itself amount to a surrender of the security, but treated that as an alternative submission. It is not strictly necessary to determine that matter, given the findings I have reached in respect of the voting of the debt at the meeting in November 2011; however, I have referred to the treatment of the security in the proof of debt as consistent with the way in which it was voted at that meeting. 10In these circumstances, it seems to me that the Court may properly make a declaration in the form sought by the liquidators. There is utility in making such a declaration, so as to bring about clarity in the winding-up, particularly in circumstances where the credit insurer may rely on rights of subrogation or otherwise seek to prove a debt in the winding-up. In Young v ACN 081 162 512 Pty Ltd, above, Gzell J held that such a declaration could be made, in the case of a voluntary winding-up, under s 511 of the Corporations Act. Alternatively, such a declaration could be made on the basis of the Court's general jurisdiction to grant declaratory relief. I will therefore make a declaration in the form sought by the liquidators, and it is not necessary in those circumstances to give a direction in the form which was alternatively sought. 11The liquidators seek an order that their costs and expenses in the application be paid out of the company's assets. I consider that this is a proper case for such an order, where the application is an incident of identifying the manner in which the relevant funds can properly be distributed to the company's creditors: Re Purchas (as liquidator of Astarra Asset Management Pty Ltd (in liq)) [2011] NSWSC 91 at [29]; Re Parbery & Ors (as liquidators of Trio Capital Ltd (in liq)) [2012] NSWSC 597 at [18]; (2012) 88 ACSR 700. 12The orders of the Court are therefore as follows: 1. Declare that the defendant, Crane Distribution Limited, has surrendered any security it may have held over any of the property of Cosmopolitan Constructions Pty Limited (in liquidation). 2. The plaintiffs' costs and expenses of the application be paid out of the assets of the company. 13I order that the exhibits may be returned. I direct that the plaintiffs retain the exhibits pending the expiry of the time for any appeal. ********** 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. Decision last updated: 21 June 2013