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Lollback v Brakepower Pty Ltd [2010] NSWSC 1457

by Emma.Gleeson 7. February 2011 16:32

Facts

The plaintiff was the sole director and contributory of Brakepower Pty Ltd (Brakepower). He sought two orders against the liquidator of Brakepower: for a review of a registrar's decision concerning the costs of a remuneration application; and for an inquiry, pursuant to s 536 of the Corporations Act 2001 (Cth), into the liquidator's conduct as liquidator of Brakepower.

 

A review "involves discretionary intervention": [13] (referring to Tomko v Palasty (No 2) [2007] NSWCA 368; (2007) 71 NSWLR 61). The starting point for a review is the decision sought to be reviewed, the basis on which it was made and the material placed before the court.

 

Where review is sought of a decision "relates wholly to a matter of discretion", such as a decision as to costs, "the court will be very slow to intervene and should not do so except on grounds of the kind identified in House v R [(1936) 55 CLR 499] at 504–505": [15].

 

In the case at hand, the tapes of the hearing before the registrar had been "lost", so there was no record of the reasons for the registrar's decision. In such a situation, the relevant question" is whether, on the facts, the decision is unreasonable or plainly unjust": [16].

 

Outcome

The registrar's decision in relation to remuneration resulted in the liquidator being awarded approximately 55% of one part of his claim and 50% of another part of his claim. This must be considered in light of the procedure. The liquidator had a right to remuneration. He "resorted to a procedure provided to him by statute and made submissions to the court as to what it should allow him": [19]. The fact that it allowed him less was not an "event" for the purposes of the decision as to costs, even in the light of submissions made on the plaintiff's behalf: [19]. There was therefore no basis for discretionary intervention in the registrar's decision as to costs: [20].

 

In relation to the claim pursuant to s 536 of the Corporations Act, Barrett J referred to his Honour's decision in Kennards Hire Pty Ltd v RMGA Pty Ltd [2010] NSWSC 1387 at [35] to [37]: [22].

 

Relevantly, the first stage of proceedings under s 536 is for the court, upon application, to establish whether an inquiry is warranted. For this question to be answered positively, the applicant must establish that there is a sufficient basis, on the grounds of "something about the liquidator's conduct": [22].

 

The court has a discretion whether or not to order an inquiry, and the purpose of such an inquiry should be borne in mind: that purpose is related to regulation, supervision, discipline and correction of liquidators in the interests of honest and efficient administration of the estates of companies subject to winding up. The interest to be served is a public interest. The section is not concerned in any direct way with vindication of private rights: [22] (citing [37] of Kennards Hire, above).

 

His Honour held that the task of a judge considering whether an inquiry under s 536 of the Corporations Act is warranted "is to decide whether there is a well-based suspicion indicating a need for further investigation of these matters (or any of them), with “suspicion” connoting a positive feeling of actual apprehension or mistrust, as distinct from mere wondering": [23].

 

The conduct said by the plaintiff to warrant an inquiry was the liquidator's resistance to the termination of the winding up of Brakepower; the convening of a meeting to fix the liquidator's remuneration; and the amount of remuneration claimed by the liquidator: [24]–[26].

 

In relation to the liquidator's resistance to the termination of the winding up of Brakepower, it cannot be said that such resistance at a particular date was unreasonable in circumstances where a report which may have supported the termination of the winding up had been provided to the liquidator at close of business on the previous business day: [57].

 

In any case, the report supported the termination of the winding up on the basis of a proposal that the debt owed to a related party, Vamona Pty Ltd (Vamona), would be capitalised and converted into share capital: [57]. That proposal entailed potential disadvantage for Vamona: [59]. Among other issues, the plaintiff was the sole director of Vamona, which raised questions as to how he would compromise his fiduciary obligations to both Brakepower and Vamona: [59].

 

In the circumstances, the liquidator "was entitled to have reservations as to whether [capitalisation] would occur" unless and until it did: [60]. (See also Re SNL Group Pty Ltd [2010] NSWSC 797 as to the absence of a well-founded assumption that the court would see an undertaking by the plaintiff regarding capitalisation as a sound basis on which to terminate a winding up: [61].)

 

Had the plaintiff sought the liquidator's approval under s 471(1A) of the Corporations Act in relation to the issue of shares, attended to the capitalisation and then provided evidence of solvency, the liquidator may have taken a different attitude to the termination application: [62].

 

However, in the circumstances, the liquidator was not bound to consent to the application: [65].

 

In any case, a liquidator's consent to a termination application does not mandate that termination. The court's power under s 482 of the Corporations Act is discretionary (at [63]), although the liquidator's position is "an important consideration" (at [64]).

 

In relation to the convening of the meeting of creditors, the liquidator gave notice of the meeting on 25 February 2010, on which date, the plaintiff's "termination application had been before the court on two occasions but had not been progressed in any substantive way": [71]. That remained true at the time of the meeting on 12 March 2010.

 

The position under s 473(3) of the Corporations Act is that "the fixing of remuneration is normally or principally a task for a meeting of creditors": [69]. While it may be dealt with in a summary manner when the court deals with an application for the termination of winding up, in the case at hand, the circumstances were such that there was no "sound basis for an expectation" that the court would so deal with the question of remuneration: [71].

 

The meeting of creditors declined to grant the remuneration sought by the liquidator: [72]. Importantly, it also refrained from making a determination that some lesser amount could have been granted, as it had the power to do under s 473(3)(b)(i) of the Corporations Act: [72].

 

In those circumstances, it was not unreasonable for the liquidator to make an application to the court under s 473(3)(b)(ii) of the Corporations Act: [73].

 

The conduct of the liquidator in convening a meeting of creditors for the purpose of considering the question of remuneration did not warrant an investigation under s 536 of the Corporations Act: [75].

 

Nor did the liquidator's inadvertent failure to provide a remuneration report with the notice of the meeting of creditors warrant an investigation under s 536 of the Corporations Act, especially as the meeting made no decision (so no decision was made on the basis of inadequate or incomplete information): [79]–[80].

 

In relation to the quantum of remuneration sought by the liquidator, the fact that the court awarded "a sum appreciably lower than that sought", but that of itself is not sufficient to warrant an inquiry pursuant to s 536 of the Corporations Act: [86].

 

Finally, his Honour held that a claim for an inquiry pursuant to s 536 of the Corporations Act does not envisage "an inquiry 'whether any other conduct of the Liquidator was unreasonable, improper or in breach of the Act'": [90]. The court's power under s 536(1)(a) and (b) is confined; it is not "free to range at will over the whole of the liquidator’s conduct": [90].

 

 

Relevant paragraphs of Ford

[27.180], [27.183], [27.184]

 

Tags:

Ford's Principles of Corporations Law



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