Supreme Court New South Wales Medium Neutral Citation: In the matter of El Zorro Transport Pty Ltd [2013] NSWSC 1082 Hearing dates: Monday 8 July 2013 Decision date: 08 July 2013 Jurisdiction: Equity Division - Corporations List Before: Brereton J Decision: Order that the defendant be wound up. Order that David Anthony Hurst and Philip Raymond Hosking of Hosking Hurst Pty Ltd be appointed official liquidators of the defendant. Order that the plaintiff's costs be paid out of the assets of the defendant. Decline to order that costs of the application be costs in the administration of the company. Catchwords: CORPORATIONS - External administration - winding up - where dispute as to appropriate appointee - plaintiff's nominee ordinarily appointed - where administrator seeks appointment as liquidator - whether grounds for departing from ordinary course of appointing plaintiff's nominee Cases Cited: Barclay v Barclay (Kearney J, Supreme Court of NSW, 22 December 1978, unreported) Parkinson v Morkaya [2008] NSWSC 1183 Glenwood Village Pty Ltd v Glen Alpine Constructions Pty Ltd [2009] NSWSC 516 Workers Compensation Nominal Insurer v Perfume Empire Pty Ltd [2011] NSWSC 380 Category: Principal judgment Parties: Consolidated Rail Leasing Pty Limited (plaintiff) El Zorro Transport Pty Limited (defendant) AWB (Australia) Pty Limited (first supporting creditor) Grain Corp Operations Limited (second supporting creditor) Workers Compensation Nominal Insurer ABN 83 564 379 108 (third supporting creditor) Representation: Counsel: Mr AW Smith (plaintiff) Mr GD McDonald (defendant) Mr A Jois (first supporting creditor - solicitor) Ms A Barwick (second supporting creditor - solicitor) Mr J Idas (third supporting creditor - solicitor) Solicitors: Zraika Partners Lawyers (plaintiff) MSB Lawyers (defendant) Greenfields (first supporting creditor) Mills Oakley Lawyers (second supporting creditor) Forbes Dowling Lawyers Pty Limited (third supporting creditor) File Number(s): 13/ 157013 Judgment (ex tempore) 1HIS HONOUR: By originating process filed on 21 May 2013, the plaintiff Consolidated Rail Leasing Pty Ltd claims an order that the defendant El Zorro Transport Pty Ltd be wound up in insolvency, and that David Anthony Hurst of HoskingHurst Pty Ltd be appointed liquidator of the defendant. 2As appears from an affidavit of Graham Vose of 21 May 2013, the plaintiff caused a creditor's statutory demand to be served on the defendant on 23 April 2013 claiming a debt of $104,164.50 as specified in the schedule to that notice. As appears from the affidavit of Jason Ferguson sworn 20 May 2013, the defendant did not comply with that demand and the sum so demanded remained due and payable to the plaintiff as at 20 May 2013. As appears from the affidavit of Emmanuel Sayanos sworn 28 May 2013, the originating process, affidavit in support, liquidator's consent and affidavit of search was served on the defendant on 24 May 2013. The affidavit of Adam Zraika of 20 May 2013 establishes that the requisite search of the records of the Australian Securities and Investments Commission was conducted, that no administrator had then been appointed and that no other winding up application was pending nor any winding up order made against the defendant. An affidavit of the same deponent of 30 May 2013 establishes that the relevant notification of application for a winding up order was made on ASIC's insolvency publications website on 30 May 2013. Lisa de Bono's affidavit of 30 May 2013 establishes that a notification of court action relating to winding up was lodged with ASIC on 21 May 2013, and subsequently registered by ASIC. A consent of liquidator of David Anthony Hurst and Philip Raymond Hosking of HoskingHurst Pty Ltd dated 4 July 2013 has been filed. An affidavit of Adam Zraika of 4 July 2013 establishes that at the date of that affidavit the defendant is indebted to the plaintiff in the sum of $239,000 approximately, including the sum referred to in the statutory demand, and that the defendant has failed to pay the amount claimed in the demand or to secure or compound to it to the plaintiff's satisfaction. A further affidavit of the same deponent of 4 July 2013 confirms that Glenn Anthony Crisp, Dino Bernadino Calvisi and Sule Arnautovic were appointed joint and several administrators to the defendant on 14 June 2013. 3The evidence establishes that the defendant has failed to comply with a creditor's statutory demand and is therefore presumed to be insolvent. No evidence was adduced, nor submission made, to the contrary. Accordingly it is appropriate that the defendant be wound up in insolvency. 4The issue in dispute is the identity of the liquidator to be appointed. The plaintiff submits that the liquidators who are partners of the firm HoskingHurst, who have given the consent to which I have referred, should be appointed. The administrators seek leave to be heard, and submit that they should be appointed. 5It is the practice of the Court that, all things being equal, it will appoint the plaintiff's nominee as liquidator where there is a contest to the appropriate identity of the appropriate appointee, and there is nothing to be said between the competing nominees as to their respective fitness, qualifications or cost [see Barclay v Barclay (Kearney J, Supreme Court of NSW, 22 December 1978, unreported); Parkinson v Morkaya [2008] NSWSC 1183; Glenwood Village Pty Ltd v Glen Alpine Constructions Pty Ltd [2009] NSWSC 516; and Workers Compensation Nominal Insurer v Perfume Empire Pty Ltd [2011] NSWSC 380.] 6The administrators submitted that they should be appointed, for the reasons, first, that they had already undertaken a large amount of work and their appointment would avoid duplication and thus save costs to the company and the creditors; secondly, that the assets, creditors, employees and records were mainly located in Melbourne, where their firm was located, whereas the liquidators nominated by the plaintiff were located only in Sydney; thirdly, that there was an appearance of a potential for conflict, because the petitioning creditor had previously served statutory demands which had been paid out, which payments might well be liable to be impugned as preferences; and, fourthly, that other relevant factors including rates were evenly balanced. 7I accept that the other relevant factors are more or less evenly balanced. The charge-out rates of the plaintiff's proposed liquidator and of the administrators are comparable. 8It is clear enough that there is significant controversy as to the identity of the appropriate liquidator. A resolution was proposed at a creditors meeting for the removal of the administrators. It would seem that that resolution was supported by a majority in number, but only a minority in quantum, of the creditors admitted to vote at that meeting, and was resolved in the negative on the administrator's casting vote. Before the Court three supporting creditors have appeared to support the plaintiff's application and nomination of the plaintiff's proposed liquidator. Because of late service, I rejected the tender of letters which tended to indicate some support by other creditors for the continuation of the administrators as liquidators. 9So far as the first matter advanced by the administrators is concerned, it is of significance that a substantial amount of work has been completed by them, duplication of which might be avoided were they to be appointed. If their appointment were, as amongst the creditors, relatively uncontroversial, that would be a very strong factor. However, as I have said, their continuation is far from uncontroversial. 10It cannot be overlooked that this is yet another case in which a manifestly insolvent company has effectively deferred the inevitable by having voluntary liquidators appointed after winding up proceedings were commenced, thereby incurring a substantial amount of costs but then, when no solution was found by the voluntary administrators, going into liquidation. The Court is told that the real assets amount to some $80,000, and that the real potential for generating some assets in the liquidation is through the recovery of preferences. This is in context where on the Court's record are notices of appearance by supporting creditors: by AWB Australia for $6.9 million, by GrainCorp Operations for $112,000, by Southern Shorthaul Railroad for $114,000, by Holdco Holdings for $93,000, by the Workers Compensation Nominal Insurer for $133,000, by Junee Railway Workshops for $14,000, and by Keppel Prince Engineering for $37,000. The evidence filed on behalf of the administrators indicates that there are 88 priority employee creditors whose claims total some $1.467 million, and 146 unsecured creditors with claims totalling $12.79 million. It is unsurprising in those circumstances that a significant body of the creditors would have reservations as to the appropriateness of the administrators continuing as liquidators. In those circumstances, the fact that there might be some savings in work already carried out by the administrators to the cost of about $100,000 is of less weight than it otherwise would be. 11So far as the location of the assets, creditors, employees and records is concerned, while I accept that the records at least are chiefly located in Victoria, the list of creditors and their location and the disposition of the company's business indicates that, while its centre of gravity may have been in Victoria, its business ranged over Victoria, the Australian Capital Territory and New South Wales. Again, while these matters might tend slightly in favour of a Victorian appointment, to my mind in this day and age with the means of communications and technology available to a liquidator, that is a consideration of relatively slight weight. 12So far as the suggestion that the liquidator's independence might be compromised by the circumstance that the petitioning creditor could be a defendant to a preference claim, I regard this as verging on the spurious. Liquidators are frequently required to bring preference claims, including against petitioning creditors, and this has never been regarded as an objection to their appointment. Once appointed, their duty is to the Court and to the company as a whole, not to the creditor who appoints them. 13Accordingly, while there are some factors that weigh in favour of a Victorian appointment and of the appointment of the administrators to avoid duplication of work already carried out, in the circumstances of this case, where there is significant controversy as to the appropriateness of those administrators remaining in office, I consider the weight of those matters slight, and insufficient to overcome the Court's ordinary disposition to appoint the plaintiff's nominee unless there is something to be said against the plaintiff as to the matter of fitness, which there is not. 14I order that the defendant be wound up in insolvency, and that David Anthony Hurst and Philip Raymond Hosking of HoskingHurst Pty Ltd be appointed official liquidators of the defendant. I direct that these orders be entered forthwith. 15I order that the plaintiff's costs be paid out of the assets of the defendant. In my view, these administrators have descended into the controversy between the warring camps of creditors, have made submissions impugning the independence and capacity of the nominated liquidator, and have effectively taken their chances on the present application as to whether they would displace the ordinary practice of the Court. In those circumstances, it is inappropriate to make an order that costs of this application be treated as costs in the administration, and I decline to so order. ********** 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: 14 August 2013