Handberg, in the matter of Greight Pty Ltd (in liq) [2006] FCA 17 (25 January 2006)

FEDERAL COURT OF AUSTRALIA

Handberg, in the matter of Greight Pty Ltd (in liq) [2006] FCA 17

CORPORATIONS – removal of liquidator – standing to apply – single liquidator of several corporations – actual conflict

Corporations Act 2001 (Cth) s 503

Association of Land Financiers, In re (1878) 10 Ch D 269 cited
Bank of Credit and Commerce International S.A. (No 8), In re [1998] AC 214 cited
Blundell, In re (1888) 40 Ch D 370; (1889) 44 Ch D 1 cited
Britton & Millard Ltd, In re (1957) 107 L Jo 601 cited
Chief Commissioner of Stamp Duties for New South Wales v Buckle [1998] HCA 4; (1998) 192 CLR 226
City and County Investment Co (Ltd), In re (1877) 25 WR 342 cited
Deloitte & Touche A.G. v Johnson [1999] UKPC 25; [1999] 1 WLR 1605 discussed
Diplock, In re [1948] 1 Ch 465 cited
Hale v Omaha National Bank, 49 NY 626 (1872) cited
Hewett v Court [1983] HCA 7; (1983) 149 CLR 639 cited
Hovey v Elliott, 118 NY 124 (1890) cited
Jennings v Mather [1901] 1 QB 108 cited
Octavo Investments Pty Ltd v Knight [1979] HCA 61; (1979) 144 CLR 360 cited
Rubber and Produce Investment Trust, In re [1915] 1 Ch 382 cited
Swiss Bank Corporation v Lloyds Bank Ltd [1982] AC 584 cited
Western Life Assurance Society; Ex parte Willett, In re (1870) 5 Ch App 396 cited

1 Jones on Liens (1914)

In the Matter of Greight Pty Ltd (In Liquidation)

In the Matter of Stafford Services Pty Ltd (In Liquidation)

GEOFFREY NIELS HANDBERG (in his capacity as liquidator of National Personnel Pty Ltd (in liquidation)) and NATIONAL PERSONNEL PTY LTD (in liquidation) v ANTHONY ROBERT CANT (in his capacity as liquidator of Greight Pty Ltd (in liquidation) and in his capacity as liquidator of Stafford Services Pty Ltd (in liquidation)),
GREIGHT PTY LTD (in liquidation) and
STAFFORD SERVICES PTY LTD (in liquidation)

VID 1583 of 2005

FINKELSTEIN J
25 JANUARY 2006
MELBOURNE

In the Matter of Greight Pty Ltd (In Liquidation)
In the Matter of Stafford Services Pty Ltd (In Liquidation)

BETWEEN:	GEOFFREY NIELS HANDBERG (in his capacity as liquidator of National Personnel Pty Ltd (in liquidation)) and NATIONAL PERSONNEL PTY LTD (in liquidation) Plaintiffs
AND:	ANTHONY ROBERT CANT (in his capacity as liquidator of Greight Pty Ltd (in liquidation) and in his capacity as liquidator of Stafford Services Pty Ltd (in liquidation)), GREIGHT PTY LTD (in liquidation) and STAFFORD SERVICES PTY LTD (in liquidation) Defendants
JUDGE:	FINKELSTEIN J
DATE OF ORDER:	25 JANUARY 2006
WHERE MADE:	MELBOURNE

UPON Anthony Robert Cant undertaking to resign as the liquidator of Burns International Security Services (Australia) Pty Ltd (in liq) and as the liquidator of Greight Pty Ltd (in liq), both resignations to take effect from 4.00pm on 30 January 2006,

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

In the Matter of Greight Pty Ltd (In Liquidation)
In the Matter of Stafford Services Pty Ltd (In Liquidation)

BETWEEN:	GEOFFREY NIELS HANDBERG (in his capacity as liquidator of National Personnel Pty Ltd (in liquidation)) and NATIONAL PERSONNEL PTY LTD (in liquidation) Plaintiffs
AND:	ANTHONY ROBERT CANT (in his capacity as liquidator of Greight Pty Ltd (in liquidation) and in his capacity as liquidator of Stafford Services Pty Ltd (in liquidation)), GREIGHT PTY LTD (in liquidation) and STAFFORD SERVICES PTY LTD (in liquidation) Defendants

1 Mr Cant is the liquidator of three companies, the second defendant, Greight Pty Ltd (in liq), the third defendant, Stafford Services Pty Ltd (in liq) and another company, Burns International Security Services (Australia) Pty Ltd (in liq). These companies are not related but before their windings up they were connected with, or under the control of, one Cardamone. There had been dealings between the companies such that some have made claims in the liquidations of the others. No-one yet knows whether the claims have merit. In some instances only Cardamone knows the relevant facts. He may or he may not tell them to Mr Cant. More likely than not he will only tell Mr Cant what best suits his (Cardamone’s) interests and Mr Cant will have to do the best he can with what he is told. This has put Mr Cant in an impossible position. As liquidator of one company he may wish to believe Cardamone. As liquidator of another he may not. This is a problem when one has several masters. Mr Cant owes duties to each and there now is a conflict between duty and duty.

2 After some initial reluctance to face up to the problem Mr Cant now acknowledges that something must be done. Where the parties are at odds is as regards the proper course to adopt. The plaintiffs, National Personnel Pty Ltd (in liq) and its liquidator, say that Mr Cant should be removed as the liquidator of both Greight and Stafford Services and replaced by new liquidators. That is the purpose of their application. Mr Cant says that a special purpose liquidator should be appointed to each company to deal with those issues which cause him embarrassment. He has filed his own application for appropriate orders to bring this about.

3 The first question to consider is whether the plaintiffs (really only the corporate plaintiff) have standing to apply for the removal of Mr Cant. The application is made under s 503 of the Corporations Act 2001 (Cth). That section reads: "The Court may, on cause shown, remove a liquidator and appoint another liquidator." The section does not say (and none of its predecessors have said) who may make the application to remove a liquidator. That is left for the court to determine. As a matter of principle I think that any person with a real interest in the winding up of a company (In re Rubber and Produce Investment Trust [1915] 1 Ch 382) has standing under the section. By a person with a real interest in the winding up, I mean one whose rights or interests will directly be affected by action taken by a liquidator in the course of performing his (the liquidator’s) duties. If the company is solvent the persons with a real interest are the contributories. If it is insolvent they are the creditors. The Privy Council recently considered this question in Deloitte & Touche A.G. v Johnson [1999] UKPC 25; [1999] 1 WLR 1605 in relation to the Companies Law of the Cayman Islands which, having regard to its origins, is rather similar to the Australian statute. There joint liquidators caused the company in liquidation to bring proceedings in negligence against the company’s former auditors. One of the defendants to the action applied for the removal of the joint liquidators on the ground that they had a conflict of interest. The Privy Council advised that the liquidators ought not be removed. It did so on the basis that the plaintiff did not have standing to make the application. Lord Millett, who delivered the judgment of the Privy Council, said (at 1611) that in the case before the Board "[t]he only persons who could have any legitimate interest of their own in having the liquidators removed from office as liquidators are the persons entitled to participate in the ultimate distribution of the company’s assets, that is to say the creditors."

4 This is not to suggest that only a creditor of an insolvent company has standing to make the application. I do not think that the advice of the Privy Council goes that far. The important features in that case were that the plaintiff was not a creditor of the company in liquidation and its interests were adverse to those of the creditors. In effect the plaintiff had no legitimate interest in the identity of the liquidator. In my view there can be no hard and fast rule. In the end it will depend upon the circumstances of the case.

5 Now, in this instance the corporate plaintiff may be a creditor of Greight and Stafford Services. In order to explain why I must first say something about events which occurred before the defendant companies were wound up. For the most part the events are not controversial.

6 The corporate plaintiff (which was then under the control of Vassilopoulos) was the trustee of the National Personnel Trust, a trust which was established in early 2002. In its capacity as trustee of that trust, the corporate plaintiff conducted what is commonly referred to as a "labour hire" business. That is to say it provided a workforce to an organisation that needed work to be done but did not wish to retain its own employees to carry out that work. Usually a labour hire firm has its own workforce which it "hires" to its clients. This was not the precise situation here. When the business was first set up the corporate plaintiff obtained from Stafford Services the employees that were "hired" to clients. As a result of a restructure in 2003 the corporate plaintiff became the trustee of a new trust known as the NP Trust and in its capacity as trustee of that trust took over the employees of Stafford Services. Then, when employees were to be "hired" to a client the contract was entered into by the corporate plaintiff as trustee for the National Personnel Trust which in turn "obtained" the workers from itself as trustee of the NP Trust. Although the evidence does not say so, it seems tolerably clear that these structures were designed to "split" the profits from the labour hire business between Vassilopoulus’ interests and Cardamone’s interests.

7 In its dealings as trustee of the NP Trust, the corporate plaintiff incurred a debt of around $17 million to the Commissioner of Taxation. As a trustee it is entitled to be indemnified for that expense out of the trust fund of the NP Trust (Octavo Investments Pty Ltd v Knight [1979] HCA 61; (1979) 144 CLR 360, 367) and has an equitable lien on the fund for such expense (Jennings v Mather [1901] 1 QB 108). The equitable lien is a proprietary interest in the trust property: Octavo Investments Pty Ltd v Knight [1979] HCA 61; (1979) 144 CLR 360, 370. If the trust fund were in the hands of the corporate plaintiff, it could apply those funds in payment of the debt: Jennings v Mather [1901] 1 QB 108, 113-114. If necessary the trustee could sell trust property to pay out the debt: In re Blundell (1888) 40 Ch D 370, 377; (1889) 44 Ch D 1.

8 The corporate plaintiff is not in a position to exercise its right of indemnity in respect of the liability to the Commissioner. The reason is that it no longer has possession of the trust fund. On 21 February 2005 Cardamone removed the corporate plaintiff as trustee of the NP Trust pursuant to a power conferred in that behalf in the trust deed and substituted Greight as the trustee. The trust assets were then surrendered to Greight.

9 The corporate plaintiff’s proprietary interest in that part of the trust fund that remains with Greight still subsists provided, of course, that Greight is not able to show that it is a bona fide purchaser for value without notice: Chief Commissioner of Stamp Duties for New South Wales v Buckle [1998] HCA 4; (1998) 192 CLR 226. The probability of this defence being made out is so unlikely that it may be put to one side. On this assumption, the corporate plaintiff could obtain an order for the sale of the trust property in the hands of Greight and payment out of the proceeds of an amount sufficient to discharge the indemnity (Swiss Bank Corporation v Lloyds Bank Ltd [1982] AC 584, 604) or if the trust property is constituted by a fund an order for the payment out of that fund (Hewett v Court [1983] HCA 7; (1983) 149 CLR 639, 663). These rights, however, are rights in rem. They impose no personal obligations on the person who holds the trust assets: In re Diplock [1948] 1 Ch 465, 521; In re Bank of Credit and Commerce International S.A. (No 8) [1998] AC 214. This notwithstanding, the person with the right is often called a secured creditor. But there is no debtor.

10 It is nevertheless possible that the corporate plaintiff has a personal claim against Greight. The trust fund presently in its possession is not sufficient to satisfy the indemnity. Shortly before its winding up, presumably at the instigation of Cardamone, Greight paid significant sums out of the fund. One payment which possibly came out of the fund was a sum of $2.290 million paid to Stafford Services. Why the payment was made is not known. If the corporate plaintiff can establish that part of the trust fund went to Stafford Services and that Stafford Services was not a bona fide purchaser for value, then the corporate plaintiff will be entitled to recover that property from it because its proprietary interest would not have been destroyed. On the other hand, if the right has been destroyed by Greight the corporate plaintiff may have an action against Greight for damages for the destruction of its lien. See Hovey v Elliott, 118 NY 124 (1890); Hale v Omaha National Bank, 49 NY 626 (1872); 1 Jones on Liens, SS95 (1914) in relation to an action of this kind. Such a cause of action might also be maintained against Stafford Services if it has destroyed the charge in respect of any trust property coming into its possession.

11 So, returning to the question of standing, there is a possibility that the corporate plaintiff is a creditor of Greight and Stafford Services. Whether it is or not will depend upon facts not yet known. But the possibility is enough to give it standing to make the application under s 503.

12 If the corporate plaintiff could not claim standing as a creditor I think it would be impossible for it to proceed. I appreciate that the corporate plaintiff does have an interest in ensuring that the liquidator of each company gets in what he can and keeps down claims which may have priority over those of the corporate plaintiff. The liquidator may be better placed than the corporate plaintiff to achieve these objectives. I do not think that is enough to give the corporate plaintiff a sufficient interest in the windings up of Greight and Stafford Services to apply for removal of their liquidators.

13 Fortunately there could never be a difficulty in making an appropriate order here. Mr Cant has made his own application to regularise the situation. He asks for the appointment of special liquidators to deal with what is the known conflict. So, one way or another, the matter is before the court.

14 Before deciding what to do, let me make these preliminary observations. If there are, or are likely to be, disputes between companies in liquidation that are under the control of one liquidator then as a general rule different persons should be appointed as liquidator to each company: In re City and County Investment Co (Ltd) (1877) 25 WR 342; In re Britton & Millard Ltd (1957) 107 L Jo 601. This is not to say that it is inappropriate to appoint one person as liquidator of a group of companies or of companies that are closely connected: In re Western Life Assurance Society; Ex parte Willett (1870) 5 Ch App 396. But once the likelihood of conflict becomes apparent it is necessary to take action.

15 Having made those observations, there are two problems in the way of going along with Mr Cant’s proposal. The first is the likelihood that, as the liquidations progress, other problems will come to light with which Mr Cant will be unable to deal. There will then be further court applications and their attendant expense. The second problem is that if special liquidators are appointed it is inevitable that they will be required to go over some of the ground already covered by Mr Cant and they will need to do so on a continuing basis. This has the potential to add significantly to the costs of the liquidations.

16 During the course of submissions I told Mr Cant’s counsel that the position I favoured was for Mr Cant to resign from two of the companies and retain his position with the third. I would then appoint a new liquidator to each of the companies from which he had resigned. The corporate plaintiff has no standing to apply for Mr Cant’s removal from Burns International so I suggested that Mr Cant might resign as liquidator of that company and Stafford Services, which claims to be a creditor of Burns International, could make application for the appointment of a new liquidator. Counsel agreed to that course and, indeed, an oral application for the appointment was made. Subject to one qualification, I still think my suggestion is the best way forward.

17 There was a discussion about which liquidations Mr Cant should give up. Plaintiffs’ counsel suggested that as well as resigning from Burns International, Mr Cant should resign from Stafford Services. The latter is the most complex of the liquidations and, not surprisingly, Mr Cant wants to retain that liquidation. There being no allegation of improper conduct on his part, I see no reason not to go along with Mr Cant’s wish. In any event, Stafford Services is involved in a complex piece of litigation instituted in the Family Court by Cardamone’s wife to which Stafford Services is, or is about to become, a party, as the wife seeks orders in respect of that company’s property. Mr Cant is on top of the litigation and it would certainly be wasteful if another liquidator were required to incur expense in reaching the same state of knowledge.

18 The qualification to which I referred is this. In most applications for the removal of a liquidator it is necessary to find out the wishes of the persons really interested, in this case the creditors: In re Association of Land Financiers (1878) 10 Ch D 269. I propose here not to require that a meeting of creditors be convened for that purpose (a step that is sometimes taken before a liquidator is removed) but to request the plaintiffs to provide a copy of these reasons to the Australian Taxation Office (the Commissioner being by far the largest creditor) for the purpose of ascertaining whether it has any objection to Mr Cant remaining on as liquidator of Stafford Services. I will direct the plaintiffs to report to my associate within fourteen days the response (if any) received from the ATO. In the meantime, the orders that I will make should not be perfected. It may be necessary to recall them if the ATO takes any objection.

19 There will be orders as follows. Upon Mr Cant undertaking to resign as the liquidator of Burns International that Dennis Turner be appointed in his place; and upon Mr Cant undertaking to resign as the liquidator of Greight that Mathew Muldoon be appointed as liquidator in his place. Mr Cant’s costs and expenses will be secured. I will also direct that the costs of all parties are to come out of the funds of Greight and Stafford Services.

I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.

Counsel for the Plaintiffs:	R Brett QC M Galvin

Solicitor for the Plaintiffs:	Mills Oakley Lawyers

Counsel for the Defendants:	J Evans

Solicitor for the Defendants:	White Cleland

Date of Hearing:	19 January 2006

Date of Judgment:	25 January 2006

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 1583 of 2005

JUDGE:	FINKELSTEIN J
DATE:	25 JANUARY 2006
PLACE:	MELBOURNE

Federal Court of Australia

Handberg, in the matter of Greight Pty Ltd (in liq) [2006] FCA 17 (25 January 2006)