Supreme Court New South Wales Medium Neutral Citation: In the matter of ACN 104 635 369 Pty Ltd [2020] NSWSC 242 Hearing dates: 9 March 2020 Date of orders: 10 March 2020 Decision date: 10 March 2020 Jurisdiction: Equity Before: Emmett AJA Decision: 1. Pursuant to s 601AH(2) of the Corporations Act 2001 (Cth) the first defendant reinstate the registration of ACN 104 635 369 Pty Ltd (in liq) ("the Company"). 2. Pursuant to s 601AH(3) of the Corporations Act 2001 (Cth), that upon reinstatement of the registration of the Company Graeme Robert Beattie and Christopher Darin be appointed as the joint and several liquidators of the Company. 3. Pursuant to s 90-15(1) of Schedule 2 of the Corporations Act 2001 (Cth) that the remuneration for Graeme Robert Beattie and Christopher Darin, as joint and several liquidators of the Company, be fixed in an amount of $20,417.34 (inclusive of GST), and be paid out of the funds held in the liquidation. 4. That the plaintiffs' costs of and incidental to this application be fixed in a sum of $20,000.00 (inclusive of GST) and be paid from the funds held in the liquidation. 5. That subject to the payments identified in Orders 3 and 4 above, the Liquidators are to pay the balance of the funds held in the liquidation to the second defendant in partial repayment of the funding provided by it in respect of the winding up the Company, such payment to be made within 21 days of the Company being reinstated and being provided with the bank details of the second defendant. Catchwords: CORPORATIONS — Winding up — Liquidators — Remuneration Legislation Cited: Corporations Act 2001 (Cth), 471B, 477(2B), 502, 503, 509, 511, 564, 601AH, Sch 2 (Insolvency Practice Schedule) s 90-15(1) Category: Principal judgment Parties: Graeme Beattie in his capacity as former liquidator of ACN 104 635 369 Pty Ltd (Deregistered) (First Plaintiff) Christopher Darin in his capacity as former liquidator of ACN 104 635 369 Pty Ltd (Deregistered) (Second Plaintiff) Australian Securities and Investments Commission (First Defendant) AJ Azzopardi Industries Pty Ltd (Second Defendant) Representation: Counsel: D Nagle (Plaintiffs) D Robertson (Second Defendant) Solicitors: Lancaster Law & Mediation (Plaintiffs) Thurai Rajah Lawyers (Second Defendant) File Number(s): 2019/309390 EX TEMPORE Judgment 1. HIS HONOUR: Introduction By amended originating process dated 25 October 2019, the plaintiffs, Mr Graeme Beattie and Mr Christopher Darin (the Liquidators), seek orders in relation to ACN 104 635 369 Pty Ltd (the Company), a deregistered company. The Liquidators claim orders: * under s 601AH(2) of the Corporations Act 2001 (Cth) (the Corporations Act) that the Company be reinstated; * pursuant to s 601AH(3) that, upon reinstatement, they be appointed as the joint several liquidators of the Company; * under s 90-15(1) of Sch 2 of the Corporations Act, the Insolvency Practice Schedule, that their remuneration be determined in a sum fixed by the Court and be paid out of the funds of the Company; * that their costs of and incidental to the application be costs of the winding up of the Company; * that the balance of the funds held by them for the Company be paid to AJ Azzopardi Industries Pty Ltd (Azzopardi). 1. Azzopardi is the second defendant in the proceedings. The first defendant is Australian Securities and Investments Commission (the Commission), which has paid no part in the proceedings. However, by letter dated 10 October 2019, the Commission indicated that it would not oppose the application for reinstatement of the Company, provided certain conditions have been satisfied relating to formal requirements of the orders. I am satisfied that those conditions will be satisfied. 2. Certain of the orders sought by the Liquidators, namely, those relating to their remuneration and the costs of the application were opposed by Azzopardi. Azzopardi did not oppose the orders for reinstatement, the reappointment of the Liquidators as liquidators, or the distribution of the remaining funds to Azzopardi. 3. In order to put the relief sought by the Liquidators in context it is necessary to say something about the history of the liquidation of the Company. That history is somewhat tortuous and has been the subject of several hearings in the Federal Court of Australia, resulting in orders in 2013, 2014 and 2015, to which I shall make brief reference. The Winding up of the Company 1. On 18 March 2010, the Company was placed into a members' voluntary winding up on the basis that it was solvent. Mr Peter Hillig was appointed as liquidator. 2. Azzopardi claimed to be a creditor of the Company in the sum of approximately $570,800. The circumstances in which that alleged debt came into existence are not entirely clear and it will not be possible to resolve that question. Allegations were made by Azzopardi that, prior to its voluntary winding up, the Company had declared and paid a dividend in the sum of $600,000, knowing that Azzopardi was owed a substantial amount and that, by declaring the dividend, the Company would not be in a position to discharge its obligations to Azzopardi. If in fact the Company was indebted to Azzopardi as claimed, it was not solvent. 3. On 7 February 2011, Mr Steven Gladman was appointed as liquidator in lieu of Mr Hillig and the liquidation of the Company continued as a creditors' voluntary winding up. Mr Gladman remained as liquidator until 9 July 2013. During that time, Azzopardi provided funding to Mr Gladman to carry out investigations and to pay for storage of the Company's documents. There is some question as to how much was provided by Azzopardi to Mr Gladman. The Liquidators say that it was an amount of some $16,500, although Azzopardi contends that a greater sum was provided. During his time as liquidator, Mr Gladman prepared a report for the Commission at the Commission's expense. The report revealed that the Company may have causes of action against its former directors and accountant to recover substantial sums that the Company had paid out to its directors and shareholders, including the dividend of $600,000. 4. On 9 July 2013, a meeting of shareholders and creditors of the Company was convened pursuant to s 509 of the Corporations Act. At the relevant time, s 509(1) relevantly provided that, as soon as the affairs of a company in voluntary liquidation are fully wound up, the liquidator must make up an account showing how the winding up has been conducted and the property of the company has been disposed of and, when the account is so made up the liquidator must, in the case of a creditors' voluntary winding up, convene a meeting of the creditors and members for the purposes of laying before it the account and giving an explanation of the account. 5. Under s 509(3), the liquidator was required, within seven days after the day of the meeting, to lodge a return of the holding of the meeting, together with a copy of the account. Section 509(5) relevantly provided that the Commission must deregister the relevant company at the end of the period of three months after the return was lodged. However, under s 509(6), on application by the liquidator or any other interested party, the Court could make an order that the Commission deregister the Company on a specified day. However, the Court must make such an order before the end of the three month period after the return was lodged. 6. On 15 July 2013, Mr Gladman filed a return under s 509 in relation to the meeting of members and creditors held on 9 July 2013. The effect of the filing of that return would have been that the Commission was required to deregister the Company three months after the date on which the return was lodged. However, on 8 October 2013, Azzopardi applied to the Federal Court seeking: * an order that Mr William Hamilton be appointed as the Company's liquidator pursuant to ss 502 and 503 of the Act; * an order approving a retainer agreement between Mr Hamilton and Azzopardi pursuant to s 477(2B) of the Act, and * an order extending the date on which the Company would be deregistered pursuant to s 509(6) of the Corporations Act. 1. Section 502 of the Corporations Act relevantly provided that if from any cause there is no liquidator acting, the Court may appoint a liquidator. Section 503 provides that, on cause shown, the Court may remove a liquidator and appoint another liquidator. Section 477(2B) of the Corporations Act relevantly provided that, except with the approval of the Court, a liquidator of a company may not enter into any agreement on the Company's behalf if the term of the agreement may end more than three months after the agreement is entered into, or obligation to any part of the agreement may be discharged by performance more than three months after the agreement is entered into. 2. On 9 October 2013, Farrell J of the Federal Court made orders pursuant to Azzopardi's application of 8 October 2013. Her Honour ordered, pursuant to s 471B of the Corporations Act, that Azzopardi be given leave, nunc pro tunc, to commence the proceedings against the Company. Pursuant to s 502, her Honour ordered that William Hamilton be appointed as liquidator and ordered, pursuant to s 509(6), that the Commission deregister the Company on 31 October 2018. Her Honour also made an order approving the retainer agreement made between Azzopardi and Mr Hamilton. 3. Pursuant to the retainer agreement, Azzopardi provided funding to Mr Hamilton to carry out investigations, including public examinations. The Liquidators accept that some $66,345 was provided by Azzopardi, although Azzopardi claims that the amount provided was greater than that amount. 4. Things did not travel smoothly for the liquidation of the Company and, on 3 June 2014, Mr Hamilton resigned as liquidator following the suspension of his registration is a liquidator. A further application was then made by Azzopardi to the Federal Court, and on 27 June 2014, Farrell J made orders appointing the Liquidators as the Company's liquidators to replace Mr Hamilton. Her Honour also made an order pursuant to s 477(2B) of the Corporations Act approving a retainer agreement between Azzopardi and the Liquidators. 5. In June 2014, the Company, through the Liquidators, commenced proceedings against six defendants, seeking amongst other orders the repayment of the dividend of $600,000 that the Company had paid to its shareholder prior to its winding up. Funding was provided by Azzopardi to enable the commencement of the proceedings. On 12 August 2014, the parties to those proceedings attended a mediation which resulted in a settlement that required Court approval. On 15 December 2014, Gleeson J in the Federal Court made orders pursuant to s 477(2B) approving the settlement with the six defendants. Under the terms of that settlement agreement the first to sixth defendants were to repay to the Company amounts totalling $605,000. 6. On the same day Gleeson J ordered that the proceedings be referred to a Registrar of the Court to determine the remuneration of the Liquidators to the extent that such remuneration had not already been fixed and ordered that any application by Azzopardi pursuant to s 564 of the Act be made within 21 days of the determination of the Liquidators' remuneration. Section 564 relevantly provided that, where in any winding up property is recovered under an indemnity for costs of litigation given by particular creditors, the Court may make such orders as it deems just with respect to the distribution of that property and the amount of those expenses so recovered, with a view to giving those creditors an advantage over others. 7. On 13 November 2015, Gleeson J in the Federal Court made further orders under s 511 of the Corporations Act fixing the remuneration to be paid to the various liquidators of the Company. Relevantly, her Honour ordered that Mr Hamilton be paid additional remuneration in the sum of $25,016.73, that Mr Gladman be paid remuneration fixed in the sum of $146,226.61 and that the Liquidators be paid a remuneration fixed in the sum of $51,334.48. In the course of her reasons, Gleeson J referred to the request by the Liquidators for approval of remuneration in the sum of $38,323 for the period from 27 June 2014 to 23 February 2015, the sum of $12,511.64 for the period since 23 February 2015, and up to $7,500 for work to complete the winding up. 8. Gleeson J referred to affidavit evidence by one of the Liquidators, Mr Graeme Beattie, to the effect that, barring any unforeseen applications, he anticipated that he could pay out any remuneration ordered by the Court, and then make a distribution to unsecured creditors. Mr Beattie referred to the concern that he had that, despite repeated requests, he had not received a breakdown of Azzopardi's costs in relation to the appointment of liquidators that would normally have priority under the Corporations Act. Mr Beattie said that he anticipated that the future remuneration required to finalise the liquidation could be in the range of $5,000 to $7,000, and that he sought approval for an amount of up to $7,500 for that purpose, together with any necessary expenses, such as attending the hearings. Her Honour accepted that it was practical and appropriate to approve the remuneration for the Liquidators' reasonable future work to complete the winding up and allowed the sum of $7,500. The total amounts to be paid to the various liquidators fixed by the several orders to which I have referred totalled $355,700.33. 9. In his affidavit of 28 October 2019 filed on behalf of the Liquidators, Mr Beattie outlined the course of the liquidation following the orders made by Gleeson J on 13 November 2015. Thus, on 17 December 2015 the Liquidators received a letter from Mr Hamilton in relation to the use of an affidavit that he had sworn. The Liquidators gave instructions for their solicitors to write to Mr Hamilton to explain the use of that affidavit. 10. A letter dated 11 August 2014 had been written claiming that Azzopardi had funded the Liquidators and their predecessors up to the sum of $214,734. From 15 February 2016 to 26 February 2016 the Liquidators' solicitors corresponded with the solicitors for Azzopardi, regarding the quantum of funds available for distribution in the liquidation. On 9 March 2016, the solicitors for the Liquidators wrote to Azzopardi's solicitors in relation to the sum of $214,734, outlining what they required to be provided to enable a distribution of funds. On 20 April 2016, the Liquidators' solicitors wrote again to Azzopardi's solicitors requesting particulars of Azzopardi's contribution to the costs of the liquidation. There appears to have been no response to that correspondence. 11. On 24 January 2017 the Liquidators sent a letter to the Australian Taxation Office requesting tax clearance certificates in connection with the proposed finalisation of the liquidation of the Company. 12. On 22 January 2018, the Liquidators prepared and submitted a report to creditors (the 2018 Report). In the 2018 Report, the Liquidators referred to the members' voluntary winding up that had ceased on 7 February 2011, when the Company was placed into creditors' voluntary winding up. The 2018 Report referred to the appointment of the Liquidators and said that their role since that appointment had been to secure and realise assets of the Company, to secure the books and records of the Company and to investigate the affairs of the Company. They said that their findings were presented in the 2018 Report, which said that the next step in the liquidation process was to convene a meeting of the Company's creditors to discuss the position of the Company and the future of the liquidation. Attached to the report was a notice convening a meeting of creditors to be held on 8 February 2018. 13. The Liquidators referred to the steps taken upon their appointment to commence proceedings. They also referred to the claim made by Azzopardi to be a creditor in the sum of $570,800 relating to work done by Azzopardi under a contract between the Company and RailCorp. The 2018 Report said that Azzopardi alleged the Company did not recognise its debts as a creditor of the Company, which allowed the Company to be placed into solvent liquidation. The 2018 Report referred to the declaration of a dividend by the Company to its sole shareholder in the sum of $600,000 on 1 July 2008, which had the effect of stripping the Company of funds that would otherwise have been available to meet any debt owing to Azzopardi. 14. The 2018 Report referred to the investigations undertaken by the previous liquidators of the Company concerning the matters just described, including public examinations of the Company's officers, sole shareholder and external accountant. The 2018 Report then referred to the protracted discussions and mediation that ultimately resulted in recovery of $600,000, representing the dividend paid to the shareholder prior to the winding up of the Company. The 2018 Report then said that, following recovery of the sum of $600,000, payments had been made towards outstanding legal costs and other priority claims, such as the remuneration of the former liquidators. A summary of receipts and payments to date was included in the 2018 Report. 15. Also included in the 2018 Report was a notice of proposed dividend, providing the relevant dates for submission of claims and the anticipated dividend declaration rate. The notice of dividend said that a final dividend was to be declared on 22 March 2018 and that any creditor was required to prove a debt or claim prior to 22 February 2018. Also included in the 2018 Report was a schedule of remuneration request, seeking approval for the proposed remuneration of the Liquidators. 16. On 6 February 2018, the Liquidators received a letter from Azzopardi, referring to the 2018 Report. The letter complained that no reference was made to the moneys that had been provided by Azzopardi to all three liquidators and the disbursement expenses paid by Azzopardi on behalf of all three liquidators, on the basis that those moneys would be repaid in priority to all others. Rather, the letter said, the 2018 Report stated that the Liquidators had not obtained funding from external sources. Azzopardi complained that they had "no transparency as to the distribution of funds, other than the fact that you have disbursed the funds towards liquidator fees and disbursements." Azzopardi asserted that the Federal Court had asked creditors to abstain from proceedings to prevent funds being further depleted, and that, in accordance with that request, Azzopardi had abstained from proceedings. That, however, Azzopardi asserted, did not release the Liquidators from their obligations to Azzopardi as a creditor. Azzopardi's letter referred to the indication given to the Federal Court that the matter would be finalised within several weeks, yet the Liquidators were now seeking more costs. 17. The meeting convened for 8 February 2018 was adjourned, for want of a quorum, to 15 February 2018. There was no quorum on that day and the meeting therefore lapsed. No indication has been given by Azzopardi as to why it did not complete a claim and a proof of debt and attend the meeting. 18. On 16 February 2018, the Liquidators' solicitors wrote to Azzopardi's solicitors requesting a response to previous requests for further information. The letter said that the Liquidators had attempted to contact Azzopardi in order to finalise the liquidation and arrange for distribution of a dividend but that the Liquidators had received no response, apart from correspondence from Azzopardi to which I have referred. The Liquidators' solicitors asked Azzopardi's solicitors to confirm that they continued to act for Azzopardi or any other creditor, and whether it was proposed to provide a response to the previous correspondence. The letter said it was the Liquidators' intention to arrange an informal meeting with Azzopardi to address some issues that they appeared to have in relation to their claim. The letter said that if no response was received, the Liquidators would arrange such a meeting so that the matter may be brought to a conclusion. 19. On 19 February 2018, the Liquidators wrote direct to Azzopardi referring to the letter of 6 February 2018 and noting the concerns raised by that letter. The Liquidators noted the comments regarding the 2018 Report and that further clarification was required. The Liquidators' letter said that the Liquidators were prepared to retract the 2018 Report, including the writing off of the costs incurred in preparing the 2018 Report, and prepare a further detailed report outlining the points made, the issues relating to Azzopardi's claims and the difficulties that the Liquidators had faced in finalising the matter following the orders made by the Federal Court. The letter referred to the correspondence between the Liquidators' solicitors and Azzopardi's solicitors with respect to various matters concerning the liquidation. 20. The Liquidators' letter then went on to say that the Liquidators had previously advised Azzopardi's solicitors that they were able to identify evidence of an amount of $96,490 relating to funds that had been advanced to the Liquidators and other liquidators, that may form costs under the approved agreement, subject to any application to the Court under s 564. The letter said that Azzopardi's solicitors had previously put forward an unsubstantiated claim for the amount of $214,734 to be reimbursed and that, despite the Liquidators' requests, Azzopardi's solicitors had failed to provide a break up of that amount and any supporting documentation. The letter observed that the amount sought was an unusually high amount for winding up costs. The Liquidators said that, in the absence of both a break up and supporting documentation, they were not in a position to release any funds and they could only distribute the funds that were left, such that there would only be a dividend payable. 21. The Liquidators received a response from Azzopardi by letter dated 28 February 2018 saying "your letter against us is denied" and that there was nothing, "to talk about". Azzopardi's letter said that the Liquidators had been appointed to protect the creditors and instead, "you fill your own pockets at our expense." The letter asserted that the Liquidators "wouldn't have got to first base without us or the work we did and the costs we incurred." The letter ended by suggesting that the Liquidators "do not waste any more money correcting reports and correspondence, just finish the work as you indicated to the judge." 22. Azzopardi's solicitors wrote to the Liquidators' solicitors on 2 March 2018 observing that, as suggested by Gleeson J, Azzopardi had abstained from proceedings to preserve the money that had been recovered and was payable to Azzopardi. The letter asserted that the information sought by the Liquidators had been provided in a letter of 7 July 2014. There appears to have been no further correspondence between the Liquidators and Azzopardi, or the solicitors for the Liquidators and Azzopardi's solicitors. The Deregistration 1. As I have said, the Liquidators were appointed on 27 June 2014. In his affidavit of 28 October 2019, Mr Beattie, observes that the orders themselves made no reference to the proposed deregistration of the Company pursuant to the orders made on 9 October 2013. Mr Beattie does not recall his attention being drawn to the fact that an order had been made for deregistration of the Company to take effect in October 2018. He said that he first became aware of the deregistration of the Company on 6 August 2019. Mr Beattie explained that the Liquidators' firm had systems for forward planning in respect of files whereby, if a matter is not finalised, it is listed for a future date to be reviewed. The review date for the Company was 29 June 2018 but, for reasons unexplained, it was not actioned and a future review date was entered. Mr Beattie said that the staff member responsible for the file at that time left the employment of the firm and the matter was then being conducted and managed on a day to day basis by a new staff member. That new staff member became unwell, and appears to have overlooked the need for review. It is in those circumstances that deregistration of the Company was overlooked, necessitating the present application for reinstatement. Liquidators' Remuneration 1. As I have said, Azzopardi opposes the orders sought for further remuneration. Azzopardi refers to the fact that the Liquidators' remuneration was fixed by the orders of the Federal Court in November 2015, which provided for a sum of $7,500 to complete the winding up. Azzopardi complains that the evidence adduced on behalf of the Liquidators does not provide a sufficient explanation as to why or how they have carried out work for which they seek additional remuneration totalling between $30,943.48 and $35,943.48, and why their claim for remuneration has so greatly exceeded the estimate given in 2015. 2. In particular, Azzopardi complains that the remuneration appears to include a charge for an amount of $13,532.78 for the 2018 Report, notwithstanding that the Liquidators had said that they were prepared to retract the 2018 Report. On the other hand, of course, the response from Azzopardi was that they did not wish the Liquidators to do any further work. That appears to be the explanation as to why the 2018 Report was not retracted. 3. In his affidavit, the relevant part of which was read without objection, Mr Beattie asserted that work conducted in the liquidation from 1 July 2015 to 31 October 2018 totalled $33,370.50. He exhibited a summary of extracts from ledgers showing a total time of 68 hours 59 minutes had been employed, making up that cost of $33,370.50. Mr Beattie also produced a schedule showing a summary of work performed for the period after deregistration, from 1 November 2018 to 28 October 2019, indicating a total time of 12 hours 30 minutes at a total cost of $6,154.24. However, the Liquidators make no claim for the work done after deregistration. Mr Beattie was prepared to allow $10,000 against the sum of $33,370.50, giving $23,370.50. The Liquidators incurred legal costs of $2,546.84 after the orders made by Gleeson J and claim a further sum of $2,000 for the work remaining to complete the liquidation, giving a total of $27,917.34. 4. Azzopardi complains that the amounts charged are unclear or unexplained. Be that as it may, it would have been open to Azzopardi to object to the relevant paragraphs, and they would almost certainly have been rejected. The evidence before me indicates that there is justification for the claims made by the Liquidators, having regard to the time spent. No suggestion has been made that the charge rate is unreasonable. 5. Azzopardi complains that the additional amounts now sought appear to lack any proportional relationship to the tasks that were required to be performed by the Liquidators to complete the winding up. For that reason, I have gone in some detail through the assertions made by Mr Beattie in his affidavit as to the work that has been done since the making of the orders approving the previous remuneration. Azzopardi complains that the Liquidators have not established any entitlement to any additional remuneration above and beyond the remuneration fixed by the Federal Court on 13 November 2015 in the sum of up to $7,500. 6. I am satisfied from Mr Beattie's evidence that the justification for the work is evidenced by the material presently before the Court. In the circumstances, I do not consider that it is appropriate to restrict the remuneration of the Liquidators following the orders made by Gleeson J to the sum of $7,500, however, some adjustment is required. The figure that I consider to be appropriate to be paid out of the funds held in the liquidation is the sum of $20,417.34, being the sum of $27,917.34 referred to above, less the sum of $7,500 previously allowed by Gleeson J. Costs of this Application 1. In relation to the question of costs of this application, Azzopardi complains that the application was necessitated by the oversight on the part of the Liquidators in allowing deregistration of the Company to occur before the finalisation of the winding up. While in the early stages of the proceedings the orders for reinstatement were opposed by Azzopardi, ultimately Azzopardi withdrew its opposition. However, there were several directions hearings in the proceedings occasioned by opposition on the part of Azzopardi. On one view, it may be that Azzopardi was not a necessary party to the present application. Nevertheless, as a precaution, having regard to the part that Azzopardi had played in the winding up, the Liquidators joined Azzopardi as a defendant. It would have been open to Azzopardi to submit to the orders sought. Nevertheless, it opposed the orders until fairly recently, and continued to oppose the making of the order for remuneration and the order for costs. 2. It appears that, whether or not the winding up was completed before deregistration, it would have been necessary for an application to be made to the Court for an order authorising the payment to Azzopardi of such funds as are available, by way of reimbursement to it of the funding that it has made. Although it originally opposed the order, ultimately Azzopardi withdrew its opposition to the order sought by the Liquidators that the balance, after their remuneration and costs had been paid, should be paid to Azzopardi by way of reimbursement to it of its funding to the successive liquidators during the course of the winding up. 3. I suggested to the parties that, rather than the risk of an assessment of costs, it would be appropriate for a gross sum to be fixed as the Liquidators' costs of this application, and the sum of $20,000 inclusive of GST was arrived at. In all of the circumstances I consider that it is appropriate that the Liquidators be entitled to an order for payment of costs in the gross sum of $20,000 be paid out of the funds presently available in the winding up. I propose to make an order to that effect. ********** 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: 18 March 2020