Supreme Court New South Wales Medium Neutral Citation: In the matter of Bromesley Pty Limited (Receiver and Manager Appointed) [2017] NSWSC 295 Hearing dates: 21 March 2017 Date of orders: 21 March 2017 Decision date: 21 March 2017 Before: Gleeson JA Decision: (1) Pursuant to s 461(1)(k) of the Corporations Act 2001 (Cth) (the Act), an order that the first defendant Bromesley Pty Limited (Receiver and Manager Appointed) (ACN 605 618 022) be wound up. (2) Pursuant to s 472(1) of the Act, an order that Graeme Beattie be appointed liquidator of the Company. (3) Second and third defendants to pay the plaintiffs' costs. (4) These orders shall be taken out forthwith. Catchwords: CORPORATIONS – external administration – whether appropriate to wind up company on the just and equitable ground – where irretrievable breakdown between directors and shareholders and the affairs of the company are deadlocked – where solvency of company doubtful – where earlier assertion that some other remedy apart from winding up available not pressed. Legislation Cited: Corporations Act 2001 (Cth), ss 459A, 461(1)(k), 462(c), 467(4), 472(1), Cases Cited: Brooker v You Run the Business Pty Ltd [2008] FCA 1752 Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672 Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342; (2009) 71 ACSR 343 Shenouda v Work Safe Medics Pty Ltd [2011] NSWSC 45 Category: Principal judgment Parties: Kieu Thien Hanh Dang (First Plaintiff) Jean-Dominique Huynh (Second Plaintiff) Bromseley Pty Ltd (Receiver and Manager Appointed) (ACN 605 618 022) (First Defendant) Teresa Wang (Second Defendant) Xiuying Yang (Third Defendant) Representation: Counsel: J Giles SC/ PJ Byrne (Plaintiff) A Kaylinger (Defendants) Solicitors: Edrison Lawyers (Third Defendant) File Number(s): 2016/330221 Judgment Ex tempore (revised 24 March 2017) 1. GLEESON JA: By originating process filed on 4 November 2016, the plaintiffs, Ms Dang and Mr Huynh, apply for orders to wind up the first defendant Bromesley Pty Limited (Receiver and Manager appointed) under s 461(1)(k) or alternatively s 459A and to appoint a liquidator under s 472(1) of the Corporations Act 2001 (Cth). On the hearing of the application Mr Kaylinger of counsel appeared for the second and third defendants, Ms Wang and Ms Yang. The company, by its receiver, filed a submitting appearance. It is not in dispute that Ms Dang has standing to seek an order for the winding up of the company on the just and equitable ground under section 461(1)(k) having regard to her position as a contributory of the company: s 462(c). "Contributory" is defined in s 9 to include "for a company with share capital - a holder of fully paid shares in the company". 2. Having initially filed written submissions opposing the winding up of the company and contesting the proceedings until the matter had progressed to submissions, counsel for the second and third defendants informed the Court after the morning adjournment that he was instructed not to oppose the winding up application on the just and equitable ground. 3. In these circumstances it is only necessary to explain briefly why I am satisfied that the just and equitable ground has been established and it is appropriate to exercise the Court's discretion to wind up the company under s 461(1)(k). Background 1. Bromesley was incorporated in May 2015. It has only two shareholders being Ms Dang who holds two shares beneficially and Ms Wang who holds the other two shares beneficially. The directors of the company comprise Ms Dang, the second plaintiff Mr Huynh, the third defendant Ms Yang, and Ms Wang. Ms Yang is Ms Wang's mother. 2. The only business of the company seems to be that of a trustee of a trust known as the Bromesley Trust constituted by a unit trust deed dated 6 May 2015 between the company and two unit holders Niclalu Pty Limited and Minervana Pty Limited. Those unit holders each hold 50 units in the trust. There is a unit-holders agreement to which Ms Dang and Ms Wang are also parties as lenders to the company. 3. Each of the unit holders represents the opposing sides in these proceedings in that the beneficial owner of the shares in Niclalu is Mr Huynh's mother Ms Le and the beneficial owner of the shares in Minervana is Ms Yang. 4. Bromesley engaged in property development in relation to land at Kellyville. For that purpose it borrowed substantial sums of money, in excess of $8,000,000 approximately. Bromesley failed to repay those loans which were secured by mortgages over those properties and a general security agreement over the company. The loans and the securities were assigned to Lazarus and Co Holdings Pty Limited. Appointment of Receiver 1. On 7 June 2016 the secured party appointed a receiver and manager of Bromesley's assets, including relevantly, the Kellyville property. The receiver sold the Kellyville property to a third party on 26 August 2016 for $13.1 million. 2. After discharge of debts owed by Bromesley to the secured party and various consultants who had provided services in connection with the property, the receiver is holding $4.37 million of which $4.29 million has been placed on an interest bearing deposit (on 7 days' call) earning interest at 1.10% per annum. There is obviously an amount of money owing to the receiver in respect of his reasonable remuneration and expenses. 3. During the course of the receivership, Bromesley received a letter of demand from Sekisui House Services (NSW) Pty Limited (Sekisui), the builder engaged by Bromesley for the construction of the development on the Kellyville property. In that letter, Sekisui made a claim for compensation or damages for the lost opportunity to obtain a financial benefit from the proposed development. That opportunity is now denied to Sekisui because the Kellyville property and the potential to develop that property had been sold to a third party. The claim by Sekisui for damages is in the amount of $1,725,661. 4. On 12 October 2016 the receiver expressed the opinion that Bromesley was insolvent. It is unnecessary to make a finding in that regard. On any view, the company's liabilities well exceed its available assets. On a cash-flow test and applying a "looking-forward" approach to the ability to meet its debts as and when they fall due (s 95A Corporations Act), Bromseley's solvency is at least doubtful. It is no longer trading; at least one of the lenders - Ms Dang - does not consent to her loan moneys being used for any new projects; and the lenders' loans were provided on the express terms that Bromseley would only use the moneys for the Kellyville project. Irretrievable breakdown and deadlock 1. It was common ground, even before counsel for the second and third defendants indicated that he was instructed to no longer oppose the winding up application on the just and equitable ground, that there has been an irretrievable breakdown between both the directors and shareholders of Bromesley and that the affairs of the company are deadlocked: Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672; Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342; (2009) 71 ACSR 343 at [132] (Barrett J); Brooker v You Run the Business Pty Ltd [2008] FCA 1752 at [11]-[13] (Finklestein J). It is unnecessary to refer to the detail of that evidence. I am satisfied that the evidence supports what is common ground between the parties. 2. One further matter should be mentioned. The second and third defendants initially took the position at the commencement of the hearing that they opposed a winding up order on discretionary grounds. Among other things, they submitted that some other remedy was available to the plaintiffs, namely that Ms Dang as a shareholder in Bromesley should accept an offer to buy out her shares in the company. Although not expressly referred to, this submission called into consideration s 467(4) of the Corporations Act which provides: (4) Where the application is made by members as contributories on the ground that it is just and equitable that the company should be wound up or that the directors have acted in a manner that appears to be unfair or unjust to other members, the Court, if it is of the opinion that: (a) the applicants are entitled to relief either by winding up the company or by some other means; and (b) in the absence of any other remedy it would be just and equitable that the company should be wound up; must make a winding up order unless it is also of the opinion that some other remedy is available to the applicants and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy. 1. However, the Court was not taken to any evidence of a buy-out offer actually having been made by the second and third defendants, nor was any attempt made to explain how an offer to buy out Ms Dang's shares would address Bromesley's debt to Ms Dang in circumstances where Bromseley's financial was such that its assets were less than its liabilities. 2. Whilst it was common ground that the debts owed by Bromesley to Ms Dang and Ms Wang are not yet payable, this is because notwithstanding an event of default has occurred under the loan agreements (by reason of the appointment of the receiver to the company), the date for repayment under the loan agreements is three years from the date of the making of the loan, being three years from 3 June 2015, unless following an event of default the lenders unanimously agree to demand early repayment of their loans. There has been no unanimous agreement of the lenders to call up their loans. This has meant that Ms Dang, as shareholder in Bromesley, cannot presently obtain repayment of her loan until 3 June 2018. The interest accruing on her loan (5% compounding, it seems, daily) well exceeds the rate of interest currently being earned by the receiver on the interest bearing deposit of 1.1% per annum. 3. The second and third defendants ultimately did not press a submission that "some other remedy" was available to the plaintiffs, or at least the first plaintiff, other than winding up, nor a submission that the plaintiffs were acting unreasonably in seeking to have Bromesley wound up instead of pursuing "some other remedy" which, as I have indicated, was unidentified either by the evidence or in submissions. Accordingly, s 467(4) does not give rise to any impediment to winding up Bromesley. 4. In view of the paralysis that has affected the affairs of Bromesley and the irretrievable breakdown between the directors and shareholders, it is appropriate, in my view, that Bromesley be wound up on the just and equitable ground. The company, in its current configuration, is in what Barrett J described as a "predicament of paralysis" in Shenouda v Work Safe Medics Pty Ltd [2011] NSWSC 45 at [5]. Among other things, I also take into account the following matters: (a) whilst the Kellyville project has come to an end by reason of the receivership of Bromseley, Ms Dang cannot demand repayment of her loan (which is accruing interest at 5% per annum compounding) because Ms Wang as the other lender to Bromseley will not agree to demand repayment of the lenders' loans prior to the due date for payment of 3 June 2018; (b) the need for Bromseley to address the claim by Sekisui in an amount of $1.7 million approximately; and (c) the interests of the other unsecured creditors of Bromseley totalling approximately $522,855, who seem to be mainly trade creditors. 5. It is in the interests of the company, its creditors and members, as well as in the interests of the unit holders of the Bromesley Trust, that an independent person assume control of the affairs of the company for the purpose of investigating the claim asserted by Sekisui and to either defend that claim or reach an appropriate compromise of the claim, taking into account the interests of the creditors, and insofar as relevant (having regard to the question of solvency) the members, and of course so far as relevant, the unit-holders in the Bromesley Trust. It is also in the interests of unsecured creditors of Bromseley, whose debts remain outstanding and unpaid due to the paralysis that has affected the business of the company, that an independent person assume control of the company's affairs with a view to ensuring that all creditors' claims are appropriately dealt with in a liquidation. Other matters 1. I have been taken to the evidence by counsel for the plaintiffs of compliance with procedural matters including advertising of the application to wind up the company, evidence of consent given by the proposed liquidator, and evidence that notice of the application was appropriately lodged with ASIC. Costs 1. As to costs of the application, the plaintiffs seek an order for costs against the second and third defendants. Having regard to the approach taken by those parties in defending the proceedings, and their late indication that they would consent to the relief sought, there is no reason why costs should not follow the event. Orders 1. Accordingly I make the following orders: 1. Pursuant to s 461(1)(k) of the Corporations Act 2001 (Cth) (the Act), an order that the first defendant (Bromesley Pty Limited (Receiver and Manager Appointed) (ACN 605 618 022) be wound up. 2. Pursuant to s 472(1) of the Act, an order that Graeme Beattie be appointed liquidator of the Company. 3. Second and third defendants to pay the plaintiffs' costs. 4. These orders shall be taken out forthwith. ********** Amendments 19 May 2017 - Amendment to citation of Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97; (2001) 37 ACSR 672 - coversheet and judgment text 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: 19 May 2017