Supreme Court New South Wales Medium Neutral Citation: In the matter of ACN 134 017 171 Pty Ltd (in liq) (formerly known as DPSA Pty Ltd) [2017] NSWSC 488 Hearing dates: 24 April 2017 Decision date: 24 April 2017 Before: Gleeson JA Decision: 24 April 2017 (1) Pursuant to s 503 of the Corporations Act 2001 (Cth), the first defendant be removed as the liquidator of the Second Defendant, and Rahul Goyal and Jennifer Nettleton be appointed as joint and several liquidators of the second defendant. (2) All books and records of the second defendant in the possession of the first defendant be delivered to Rahul Goyal and Jennifer Nettleton at KordaMentha, Level 5, Chifley Tower, 2 Chifley Square, Sydney, New South Wales as soon as practicable and in any event by 5pm on Wednesday 26 April 2017. (3) There be no order as to costs. (4) Direct that these orders be entered forthwith. 26 April 2017 (5) Pursuant to s 473(8) of the Corporations Act, declare that anything required or authorised by the Corporations Act to be done by the liquidator of the company may be done by one or more of the liquidators. Catchwords: CORPORATIONS – external administration – replacement of liquidator appointed in members' voluntary winding up – application by substantial creditor to remove and replace liquidator – where substantial creditor prepared to fund new liquidators but not existing liquidators to conduct investigations into affairs of the company and its sole member – resolution at creditors' meeting failed to result in the removal of the original liquidator – resolution supported by significant majority of creditors by value defeated by majority of creditors by number – creditors voting against resolution associated with sole member – whether cause shown to appoint proposed new liquidators. Legislation Cited: Corporations Act 2001 (Cth), ss 473(8), 497, 503 Corporations Regulations 2001 (Cth) reg 5.6.21(3), 5.6.21(4) Cases Cited: Apple Computer Australia Pty Ltd v Wily (2003) 46 ACSR 729; [2003 NSWSC 719 Category: Principal judgment Parties: Schneider Electric IT Australia Pty Ltd (Plaintiff) Liam Bailey (First Defendant) ACN 134 017 173 Pty Ltd (in Liq) (Second Defendant) Representation: Counsel: Mr JS Burnett (Plaintiff) Mr T Russell (sol) (Defendants) Solicitors: Baker McKenzie (Plaintiff) Piper Alderman (First and Second Defendants) File Number(s): 2017/118464 Judgment 1. GLEESON JA: Before the Court is an application by the plaintiff, Schneider Electric IT Australia Pty Ltd (Schneider), for an order under s 503 of the Corporations Act 2001 (Cth) to remove the first defendant, Mr Liam Bailey as liquidator of the second defendant, ACN 134 017 173 Pty Ltd (in Liq) (formerly DPSA Pty Ltd) and to appoint new liquidators. The proposed new liquidators are Rahul Goyal and Jennifer Nettleton of KordaMentha. 2. As the present liquidator and the company consent to the orders sought by Schneider, it is only necessary to provide brief reasons for why the Court is satisfied that it is appropriate to make the orders sought on the application. 3. Schneider is a substantial creditor of the company, having obtained a judgment in Supreme Court proceedings in an amount of approximately $5.356 million dollars, plus interest and costs on 3 March 2017. Schneider issued a statutory demand to the company based on that judgment debt dated 13 March 2017. Subsequently, on 31 March 2017, the company was placed into a creditors' voluntary winding-up by resolution of its sole member (Mr Tesson) and Mr Bailey was appointed liquidator. 4. The first meeting of creditors of the company pursuant to s 497 of the Corporations Act was held on 12 April 2017. Prior to that meeting, Schneider had indicated that it would move a resolution to replace Mr Bailey as liquidator and appoint Mr Goyal and Ms Nettleton as liquidators of the company. 5. On 10 April 2017, Mr Goyal and Ms Nettleton provided to the defendants their signed consents to act and also completed a declaration of independence, relevant relationships and indemnities, together with a copy of their standard rates. 6. At the meeting of creditors on 12 April 2017 the resolution to remove Mr Bailey as liquidator was not carried. That was a result of the vote being that a majority of the creditors voting (12 out of 18) voted against the resolution, although the value of the debts owed by the company to those voting in favour of the resolution was more than half of the total debts owed to all creditors (in fact, 94.62 percent of creditors by value voted in favour of the resolution): Corporations Regulations 2001 (Cth) reg 5.6.21(3). The liquidator, Mr Bailey, refused to exercise his casting vote and, accordingly, the resolution was not carried: Corporations Regulations, reg 5.6.21(4). There is evidence on the present application that satisfies me that the creditors who voted against removal were either entities related to the sole director of the company, Mr Tesson, or seemed to have some close relationship to Mr Tesson. 7. On 20 April 2017, Schneider commenced the present proceedings by filing an originating process seeking various relief, including removal of Mr Bailey as liquidator and appointing Mr Goyal and Ms Nettleton as liquidators in his place. Under s 503 of the Corporations Act the Court may, on cause shown, remove a liquidator and appoint another liquidator. Authority establishes that the Court has a broad discretion to make orders under s 503. 8. After reviewing the authorities, Barrett J expressed the following summary of the position in Apple Computer Australia Pty Ltd v Wily (2003) 46 ACSR 729; [2003 NSWSC 719 at [37]: It is thus clear that "cause shown" is a broad concept concerned not so much with a search for particular instances of wrong or inappropriate conduct (although a particular event of that kind may be sufficient) but with a more general enquiry into what is for the benefit of the administration and the body of persons interested in it, as well as the maintenance of confidence in the integrity, objectivity and impartiality of that administration. Removal is warranted, in a situation such as the present, if, taken as a whole, the conduct of the liquidator can be seen to be such as to ground in the mind of a reasonable observer a perception of lack of impartiality as among the interests he is committed to serve and lack of objectivity in serving those interests. 1. In the present case, Schneider submitted that the administration of the liquidation of the company would be advanced if the present liquidator was removed and replaced with the proposed new liquidators for three reasons. First, the present liquidator and the company consent to the application. It is submitted that this is a powerful discretionary factor in favour of the orders being made. That can be accepted in the circumstances of the present case. I would add that there is no suggestion, nor evidence, of any form of collusion as between the present liquidator and the proposed new liquidators. 2. Second, Schneider emphasises its position as the largest creditor of the company and the fact that it has indicated its willingness to indemnify the proposed new liquidators for their costs of investigating the affairs of the company, but are not so prepared to fund the present liquidator. 3. Initially Schneider indicated its willingness to fund the new liquidators in an amount of $20,000, should they be appointed, to carry out an initial review of the books and records of the company and recommend any further investigation that should be undertaken. That indemnity was offered prior to the first meeting of creditors held on 12 April 2017. Since that time there is evidence in the affidavit of Mr Joseph Laban, the Regional Credit and Treasury Manager of Schneider, that based on further information made available at the creditors' meeting that approximately $40,000 of realisable assets of the company had been identified, Schneider is now willing to increase the indemnity from $20,000 to $50,000 to enable the proposed new liquidators to conduct initial investigations. 4. In his affidavit, Mr Laban outlined his concern that a full investigation of the circumstances leading to the company's liquidation and potential recovery actions that may be available for the benefit of creditors of the company be undertaken by experienced and funded liquidators. Mr Laban said that he does not have confidence that the present liquidator, Mr Bailey, has funding available to him to conduct those investigations and, as I have indicated, Schneider is not prepared to fund the present liquidator in that regard. 5. The interests of the general body of creditors, and not merely those of Schneider, are best served by the company having liquidators who have access to funds to conduct an investigation into the affairs of the company. 6. The third matter referred to by Schneider is the very substantial majority of creditors by value who voted to remove Mr Bailey as liquidator. There is evidence that at the creditors' meeting on 12 April 2017 Mr Weimer, the representative of a large number of the creditors who voted against the removal resolution, indicated that the basis of opposition to that resolution included that the rates of the present liquidator are cheaper than those of the proposed new liquidators, that the creditors for whom Mr Weimer had been appointed proxy did not want Schneider "controlling" the liquidation and that those creditors took the view that in seeking to replace the present liquidator, Schneider was pursuing a vendetta against Mr Tesson and was also seeking to damage a particular competitor of Schneider. 7. It is not possible, nor is it appropriate to express any view on the present application concerning the correctness or otherwise of those beliefs expressed by Mr Weimer at the creditors' meeting. It is sufficient to say that there is nothing to suggest that the proposed new liquidators are not independent or that their independence would somehow be compromised by the fact that Schneider is prepared to provide funding for the new liquidators to carry out investigations in relation to the affairs of the company. 8. I am satisfied that a case has been shown to remove Mr Bailey as liquidator and appoint another liquidator. As I have said, Mr Goyal and Ms Nettleton have given their written consent to their appointment and I do not consider that there is any reason why some other liquidators should be appointed rather than the liquidators proposed by Schneider. Orders 1. Accordingly, by consent, I make orders in accordance with paragraphs 1, 2 and 3 of the consent orders signed by the legal representatives for the parties and initialled by me and dated today. Those orders are: 1. Pursuant to s 503 of the Corporations Act 2001 (Cth), the first defendant be removed as the liquidator of the second defendant, and Rahul Goyal and Jennifer Nettleton be appointed as joint and several liquidators of the second defendant. 2. All books and records of the second defendant in the possession of the first defendant be delivered to Rahul Goyal and Jennifer Nettleton at KordaMentha, Level 5, Chifley Tower, 2 Chifley Square, Sydney, New South Wales as soon as practicable and in any event by 5pm on Wednesday 26 April 2017. 3. There be no order as to costs. 4. Direct that these orders be entered forthwith. 1. Although not referred to by the parties during the hearing, it is also appropriate to make an order under s 473(8) of the Corporations Act which provides that if more than one liquidator is appointed, the Court must declare whether anything that is required or authorised by the Corporations Act to be done by the liquidator is to be done by any one or more of the persons appointed. 2. Accordingly, on 26 April 2017, I made the following order: (5) Pursuant to s 473(8) of the Corporations Act, declare that anything required or authorised by the Corporations Act to be done by the liquidator of the company may be done by one or more of the liquidators. ********** Amendments 05 May 2017 - Amendment to legal representation (Solicitors) for the plaintiff 05 May 2017 - Amended "Baker & McKenzie" to read Baker McKenzie 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: 05 May 2017