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Deputy Commissioner of Taxation v Bedroff Pty Ltd ACN 079 158 955 (No 2) (includes Supplementary Reasons dated 26 November 2009) [2009] FCA 1399 (26 November 2009)

Last Updated: 3 December 2009

FEDERAL COURT OF AUSTRALIA


Deputy Commissioner of Taxation v Bedroff Pty Ltd ACN 079 158 955 (No 2)
[2009] FCA 1399


SUPPLEMENTARY REASONS FOR JUDGMENT


DEPUTY COMMISSIONER OF TAXATION v BEDROFF PTY LTD ACN 079 158 955


QUD 207 of 2009


LOGAN J
26 NOVEMBER 2009 (SUPPLEMENTARY REASONS 26 NOVEMBER 2009)
BRISBANE


IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
QUD 207 of 2009

BETWEEN:
DEPUTY COMMISSIONER OF TAXATION
Plaintiff
AND:
BEDROFF PTY LTD ACN 079 158 955
Defendant

JUDGE:
LOGAN J
DATE OF ORDER:
26 NOVEMBER 2009
WHERE MADE:
BRISBANE

THE COURT ORDERS THAT:


  1. Bedroff Pty Ltd ACN 079 158 955 be wound up in insolvency under the provisions of the Corporations Act 2001 (Cth).
  2. Gregory Michael Maloney, an official liquidator, be appointed liquidator of the company.
  3. The Plaintiff’s costs, be fixed in the sum of $1,137.31 and reimbursed in accordance in with s 466(2) of the Corporations Act 2001 (Cth).

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.


IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
QUD 207 of 2009

BETWEEN:
DEPUTY COMMISSIONER OF TAXATION
Plaintiff
AND:
BEDROFF PTY LTD ACN 079 158 955
Defendant

JUDGE:
LOGAN J
DATE:
26 NOVEMBER 2009
PLACE:
BRISBANE

SUPPLEMENTARY REASONS FOR JUDGMENT

  1. I shall add this to the reasons for judgment just published. I have been informed this morning, which I must record was not my understanding at the time when the application was heard on 24 November 2009, that Mr Delaney of Delaney’s Lawyers also had instructions to appear by, or on behalf of, the administrators under the Deed of Administration. Whilst I have recorded in the reasons for judgment just published a lamentation as to a lack of appearance on the part of the administrators I should further record that, in the event that it were the case that there were an appearance on behalf of the administrators and a misunderstanding in that regard on my part, it would make no difference whatsoever to the orders that I have just pronounced.
  2. That is so because what I describe as the significant omissions in the draft report of the administrators would remain. Further, what would also remain is the absence of any concluded view on the part of the administrators as to advantages and disadvantages insofar as the interests of the creditors are concerned of the continuance of the company under administration.
I certify that the preceding two (2) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan.

Associate:


Dated: 3 December 2009


Solicitor for the Plaintiff:
The Applicant appeared via an officer authorised on their behalf pursuant to the Taxation Administration Act 1953 (Cth)


Solicitor for the Defendant:
Mr A Delaney of Delaneys Lawyers

Date of Delivery of Judgment:
26 November 2009


Date of Judgment:
26 November 2009

FEDERAL COURT OF AUSTRALIA


Deputy Commissioner of Taxation v Bedroff Pty Ltd ACN 079 158 955 (No 2)
[2009] FCA 1399


CORPORATIONS — Liquidations — Administration — Statutory demand — Application to wind up corporation in insolvency — Failure to comply with statutory demand — Company not in administration at time of application — Administrator appointed on day prior to hearing of winding up application — Whether court was satisfied that it was in interests of creditors to continue in administration rather than to wind up corporation — Whether court was satisfied that proposed deed of company arrangement was in interests of creditors — Held deed of company arrangement not in best interests of creditors — Held continuance of administration of corporation not in the best interests of creditors — Held corporation wound up


Corporations Act 2001 (Cth) ss 435A, 440A, 439A, 459C, 530A, 556
Taxation Administration Act 1953 (Cth)
Judiciary Act 1903 (Cth)


Deputy Commissioner of Taxation v Bedroff Pty Ltd ACN 079 158 955 [2009] FCA 1266 followed
Public Trustee of Queensland v Octaviar Ltd (subject to a Deed of Company Arrangement) (Receivers and Managers Appointed) (2009) 69 ACSR 621 cited
Deputy Commissioner of Taxation v WPS Motorsport Pty Ltd (2009) 71 ACSR 640 cited
Chief Commissioner of Stamp Duties (New South Wales) v Buckle [1998] HCA 4; (1998) 192 CLR 226 applied
Vacuum Oil Co Pty Ltd v Wiltshire [1945] HCA 37; (1945) 72 CLR 319 considered
CPT Custodian Pty Ltd v Commissioner of State Revenue (Victoria) [2005] HCA 53; (2005) 224 CLR 98 applied
Australian Securities and Investments Commission v Storm Financial Limited (Receivers and Managers Appointed) (Administrators Appointed) (2009) 71 ACSR 81 cited
City of Swan v Lehman Brothers Australia Limited (subject to a Deed of Company Arrangement) (2009) 260 ALR 199 followed


DEPUTY COMMISSIONER OF TAXATION v BEDROFF PTY LTD ACN 079 158 955
QUD 207 of 2009


LOGAN J
26 NOVEMBER 2009
BRISBANE


IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
QUD 207 of 2009

BETWEEN:
DEPUTY COMMISSIONER OF TAXATION
Plaintiff
AND:
BEDROFF PTY LTD ACN 079 158 955
Defendant

JUDGE:
LOGAN J
DATE OF ORDER:
26 NOVEMBER 2009
WHERE MADE:
BRISBANE

THE COURT ORDERS THAT:


  1. Bedroff Pty Ltd ACN 079 158 955 be wound up in insolvency under the provisions of the Corporations Act 2001 (Cth).
  2. Gregory Michael Maloney, an official liquidator, be appointed liquidator of the company.
  3. The Plaintiff’s costs, be fixed in the sum of $1,137.31 and reimbursed in accordance in with s 466(2) of the Corporations Act 2001 (Cth).

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.


IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
QUD 207 of 2009

BETWEEN:
DEPUTY COMMISSIONER OF TAXATION Plaintiff
AND:
BEDROFF PTY LTD ACN 079 158 955 Defendant

JUDGE:
LOGAN J
DATE:
26 NOVEMBER 2009
PLACE:
BRISBANE

REASONS FOR JUDGMENT

  1. On 30 October 2009, for reasons which I then gave ex tempore, I adjourned the hearing of the Deputy Commissioner of Taxation’s (Deputy Commissioner) application for the winding up of Bedroff Pty Ltd ACN 079 158 955 (the company) to 24 November 2009: see Deputy Commissioner of Taxation v Bedroff Pty Ltd ACN 079 158 955 [2009] FCA 1266. These reasons for judgement should be read in conjunction with those earlier reasons.
  2. On 24 November 2009, the Deputy Commissioner renewed his application for the winding up of the company. That application was opposed, nominally, by the company. The effect of the appointment of administrators on 29 October 2009 was to place the company under their control and, while it is under administration and save with the administrators’ written approval, to suspend the powers of its officers to exercise their powers or functions. The company has but one officer, its director Mr Mark Tonge. To the extent that the company is itself inhibited from opposing the Deputy Commissioner’s application, I am prepared to treat the application as one opposed by Mr Mark Tonge. It is he who has proposed the deed of company arrangement in question. As will be seen, he is to be the beneficiary of particular releases for which that proposed deed provides.
  3. The submission made in opposition to the Deputy Commissioner’s application was that I should be satisfied, on the material by then to hand, that it was in the interests of the company’s creditors for the company to continue under administration rather than be wound up. If so satisfied I am obliged by s 440A(2) of the Corporations Act 2001 (Cth) (Corporations Act) to adjourn further the hearing of the application for an order for the winding up of the company.
  4. There was no separate appearance by or on behalf of the administrators appointed on 29 October 2009. Nor even was there an affidavit by one or the other of those administrators giving me the benefit of the results to date of their investigations and their considered opinion as to the advantages and disadvantages of the company’s continuing under administration. That is to be lamented. That is so even though, as was explained in the course of the submissions made in opposition to the Deputy Commissioner’s application, funds available for the administration have been limited.
  5. It emerged from the material read that the second meeting of creditors is to be held on 2 December 2009. A concomitant of the issue as to whether I am presently satisfied in terms of s 440A(2) of the Corporations Act is therefore whether the fate of the company should just be consigned to the decision of its creditors at that meeting.
  6. Since 30 October 2009, a deed of company arrangement has been formulated and the administrators have conducted preliminary investigations. I bear in mind that it is a necessary feature not just of this but usually every administration under Pt 5.3A of the Corporations Act that administrators have but limited time for the conduct of investigations. While a final report of the administrators is not in evidence, the draft of a report of the administrators was exhibited to an affidavit of the company’s sole director, Mr Mark Tonge. So, too, was the present form of the proposed deed of company arrangement. It will be necessary to detail at some length what is revealed in each of these documents shortly.
  7. The position which obtained on 30 October 2009 was that, though the information then to hand concerning the benefits which might flow to creditors under a Deed of Company Arrangement was then general, enough was revealed to admit of satisfaction that it was at least in the interests of creditors for the company to continue under administration for a short time so as to enable the terms of the deed to be precisely formulated, the position in relation to the company’s affairs to be investigated at least in a preliminary way by the administrators and for a binding commitment to be made on behalf of a related creditor whom it was said would subordinate his interests to those of other unsecured creditors for the purposes of any distribution under the proposed deed of company arrangement. In effect and as matters then stood, I was persuaded that observations made by Philip McMurdo J in Public Trustee of Queensland v Octaviar Ltd (subject to a Deed of Company Arrangement) (Receivers and Managers) (2009) 69 ACSR 621 told in favour of such satisfaction. It was not at that early stage a patent absence of a basis for satisfaction that it was in the interests of creditors for the company to continue under administration; cf Deputy Commissioner of Taxation v WPS Motorsport Pty Ltd (2009) 71 ACSR 640.
  8. It by no means follows that a decision made on the limited materials then to hand is in any way conclusive as to what now should be the fate of the administration. That falls for assessment afresh on the material now to hand.
  9. As at 30 October 2009, though it was conceded by the Deputy Commissioner that the effect of the allowance of an objection by the company against an assessment which underpinned the Commonwealth revenue law debt the subject of the statutory demand would have the consequence of reducing that debt once a consequential amended assessment issued, no such amended assessment had been made. Such an amended assessment was made on 20 November 2009. That amended assessment was to issue on 24 November 2009. The effect of that amendment is to reduce the company’s debt to the Commonwealth, not to eliminate it. Excluding an amount of $1,137.31 referable to filing fees and disbursements in relation to the winding up application, the amount owed by the company to the Commonwealth and payable to the Deputy Commissioner as at 24 November 2009 is $1,617,815.72. Unless satisfied, the amount of that debt will increase from day to day as the statutory general interest charge accrues.
  10. The company incurred the taxation liabilities which underpinned the statutory demand made by of it by the Deputy Commissioner at a time when it was trustee of a trust, the Barr Trust. So much was evident as matters stood on 30 October 2009. What is now revealed is that the company was, until 19 July 2009, the trustee of the Barr Trust. It assumed that obligation as the original trustee of that trust pursuant to a deed dated 26 September 1996. By a deed dated 19 July 2009, the company was removed as the trustee of the Barr Trust and replaced as trustee by FUFM Pty Ltd (FUFM). It is apparent that Mr Mark Tonge is also the director of FUFM. It seems unlikely to be a coincidence that the removal of the company as trustee occurred in the interval between when it filed its ultimately unsuccessful application on 11 May 2009 to have the statutory demand made by the Deputy Commissioner set aside and 20 July 2009, when its application to set aside that statutory demand was dismissed.
  11. The deed of removal and appointment does not make any express provision for the indemnification by FUFM from the trust fund of the Barr Trust of liabilities incurred by the company in the ordinary course of its prior administration of that. If it were thought at that time that the company’s removal from the office of trustee and that absence of provision might in some way have insulated the trust fund from the claims of the company’s creditors or its liquidator if it were wound up, that view was mistaken. That absence of express provision does not affect the position which prevails in equity. The company is entitled to be reimbursed from the trust fund of the Barr Trust in respect of expenses incurred by it in the administration of that trust up to and including the time of its removal as trustee. As was explained in Chief Commissioner of Stamp Duties (New South Wales) v Buckle [1998] HCA 4; (1998) 192 CLR 226 at 247, [50] (Buckle’s case).by reference to a statement earlier made in Vacuum Oil Co Pty Ltd v Wiltshire [1945] HCA 37; (1945) 72 CLR 319 at 335, “the trustee’s right to exoneration or recoupment ‘takes priority over the rights in or in reference to the assets of beneficiaries or others who stand in that situation’.” I did not understand the submission made in opposition to the Deputy Commissioner’s application to gainsay that position.
  12. Materially, the following statements are made in the present draft of the administrators’ report to creditors:
5. SUMMARY OF THE COMPANY’S ASSETS AND LIABILITIES

The director [Mr Mark Tonge] has provided me with a completed Report as to Affairs (“RATA”) and I have been provided with some company books and records.

Set out below is the estimated asset and liability position of the company as at 5 November 2009 based on the RATA and the information presently available to me. The position is subject to the matters raised in the notes that follow and section 14 of this report which relates to professional costs:
Notes
Optimistic
Estimate
$
Pessimistic Estimate
$




Assets


Cash at Bank and on Hand
5.1
Nil
Nil
Trade Debtors
5.2
Nil
Nil
Plant, Office Furniture and Equipment
5.3
Nil
Nil
Vehicles
5.4
Nil
Nil
Real Property
5.5
Unknown
Nil
Other Assets – GCCC Security Bond
5.6
80,000
61,538
Contingent Assets
5.7
575,000
Nil
Total Assets
Unknown
61,538




Priority Creditors


Priority Unsecured Creditors
5.8
7,000
7,000
Total Priority Creditors

7,000
7,000




Funds Available for Ordinary Unsecured Creditors
Unknown
Nil




Secured Creditors (Estimate
5.9
Unknown
Unknown




Ordinary Unsecured Creditors (estimate)


Ordinary Unsecured Creditors
5.10
4,031,314
Unknown
Total Unsecured Liabilities
4,031,314
Unknown




Total Estimated Deficiency (subject to costs)

Unknown
Unknown

My comments on the above position follow:

5.1 Cash at Bank and on Hand

Upon my appointment, demands were issued to all major banks requesting the balance of all bank accounts held in the name of the company.

My inquiries revealed that there were no bank accounts in the name of the company.

5.10 Ordinary Unsecured Creditors

Set out below is a list of the known unsecured creditors of the company together with details of the Proof of Debt forms received to date:

Creditor
Company Records
$
Proofs
of Debt
$
Ashtons Advisory
20,512.00
Delaneys Lawyers
30,000.00
Deputy Commissioner of Taxation
420,000.00
Equity Transport
822.20
James Tonge
TBC
2,654,314.00
James Conomos Lawyers
433.39
Mark Tonge
TBC
300,000.00
National Australia Bank
30,000.00
Origin Energy Retail Limited
2,753.80
Ray White
6,307.00
Telstra Insolvency Centre of Excellence
193.70
Westpac Banking Corporation
7,292.81
WMS Chartered Accountants
10,000.00
11,000.00
Total
TBC
2,964,314.00

...

10.1 Voidable Transactions and Preferential Payments

...

My investigations into financial transactions involving the company are continuing. These transactions will be examined in more detail should creditors resolve to place the company into liquidation at the forthcoming meeting of creditors.

As Liquidator, if creditors resolve to place the company into liquidation, I will investigate potential preferential payments further and funds permitting, pursue appropriate recovery action if any claims capable of commercial recovery are identified.

Investigations have not identified any preference payments. Given the company did not operate a bank account for some time and made no payments to creditors, no potentially preferential payments were identified.

11. PROPOSAL FOR A DEED OF COMPANY ARRANGEMENT

The director (Mark Tonge) has submitted a proposal for a DOCA.

The key features of the proposed DOCA are as follows:

12. DIVIDEND ESTIMATE

Based on the information presently available to me, it appears that insufficient funds will be realised to enable the declaration and distribution of a dividend to ordinary unsecured creditors should the company be placed into liquidation.

However, should creditors accept the proposed DOCA, a dividend will become payable to ordinary unsecured creditors depending on the realisation of the assets.

Set out below is a comparison of the potential dividends under the proposed DOCA and liquidation based on my investigations and best estimates:

Available Funds
Notes
DOCA
$
Liquidation
$
Real Property Lots 11, 12, 13 Coomera
12.1
Unknown
Nil
Contingent Claim against MKM Group
12.2
Unknown
Unknown
GCCC Security Bond
12.3
80,000
61,538
46/2 Belrose Country Club
12.4
70,000
Unknown
Contrabart Dollars
12.5
30,000
n/a
Insolvent Trading
12.6
n/a
Nil
Voidable Transactions
12.7
n/a
Nil
Total Funds available
Unknown
61,538




Less


Administrator’s Fees
12.8
22,000
22,000
Deed Administrator’s Fees
12.9
22,000
n/a
Liquidator’s Fees
12.10
n/a
44,000
Legal Fees
5,000
5,000
Outlays (estimate)
1,000
1,000
Total Estimated Fees
50,000
72,000




Available Funds
Unknown
Nil




Priority Creditors


Employee Entitlements
12.11
Nil
7,000
Funds for Unsecured Creditors

Nil




Related Party Claims
12.12
Nil
3,256,814
Secured Creditors Shortfall
12.13
700,000
Unknown
Unsecured Creditors
12.14
528,315
528,315
Total Unsecured Creditors (est)
1,228,315
3,785,129




Dividend to unsecured creditors
Unknown
Nil




Timing
n/a

The following notes are made in relation to the above:

12.1 Real Property Lots 11, 12 13 Coomera

The surplus available from this property (assuming there is a surplus) would ordinarily be payable to FUFM Pty Ltd as Trustee of the Barr Trust. However, the Director of FUFM Pty Ltd, namely Mr Mark Tonge has agreed that any surplus will be contributed to the creditors of Bedroff Pty Ltd in accordance with his DOCA proposal.

It is unclear what surplus funds will be available at this point in the administration.

12.2 Contingent Claim against MKM Group Pty Ltd

This debt relates to a contract into by MKM Group Pty Ltd which subsequently did not proceed. While the information in regard to amounts is commercially sensitive, the director believes a significant amount is recoverable by the Company in regard to the termination of the contract. I am yet to form a view on the recoverability of same.

The director advises that he will provide all necessary assistance to attempt to recover this debt. It is unknown what value this contingent asset would have in a Liquidation scenario.

12.3 Gold Coast City Council (“GCCC”) Security Bond

As previously advised, an amount of $80,000 is held by way of security deposit by the GCCC over Lots 1-13 of the Marine Precinct at Coomera. Given 10 of the 13 Lots have now been sold, I believe the Company is entitled to these funds. The bond is secured by way of bank guarantee with Westpac Banking Corporation.

I have written to the GCCC requesting release of 10/13 of the $80,000 and the Director advises that he will provide any assistance required in regard to this claim.

12.4 46/2 Dawes Road, Belrose Country Club

While this asset was not included in the Directors RATA, our investigations reveal that the Company had paid the mortgage of a Retirement Home in the Belrose Country Club for the mother of an employee.

I am advised the deal was that while the employee was still working for the Company, the mortgage would not be called up. However, given the employee is no longer with the Company and the appointment of Administrators, it is the view of the Director that the mortgage should be repaid.

I am advised this amount was secured by way of a Deed of Trust and I currently await provision of this document to consider what action can be taken.

In a DOCA scenario, the Director would provide all assistance required to ensure that mortgage is repaid.

12.5 Contrabart Dollars

Mr James Tonge has advised that he will contribute 100,000 Contrabart Dollars should the DOCA be accepted by creditors. I am advised that the dollars can be used to purchase property, building material and other related products.

It would be my intention to either purchase an asset and sell it at public auction or attempt to sell the Contrabart Dollars for a cash amount. After discussing this asset with the Director I have estimated a cash recovery of $30,000 after costs. This amount may be more or less depending on the assets available for purchase.

Any such recoveries would be dependent on the assets purchased and the saleability of same.

12.6 Insolvent Trading

...

In summary, no funds are expected to be realised in liquidation. No damages for insolvent trading will become available under the proposed DOCA.

12.7 Voidable Transactions

...

In summary, a small amount of funds is expect to be realised from preference payments should a liquidation occur. Voidable transactions not available under the proposed DOCA. Please note that the recovery of the preference payments will be subject to costs.

12.8 Administrator’s Fees

I estimate that my professional fees as Administrator of the company will be approximately $22,000.00 (to the date of the second meeting).

The issue of professional fees is addressed in further detail at section 15 of this report.

12.9 Deed Administrators Fees

If creditors resolve at the second meeting of creditors to accept the company’s proposal for a DOCA, I estimate the professional fees of the Deed Administrator will not exceed $22,000.00. Please note that if the costs of the Deed Administrator are less than this amount, only the lesser amount will be drawn in respect to the Deed Administrators’ fees.

12.10 Liquidator’s Fees

If the company is placed into liquidation, I estimate that the professional fees of the Liquidator will be approximately $33,000.00. The figure is a reflection of the likely necessary investigations and examinations which may need to be undertaken.

12.11 Employee Entitlements

Irrespective of the alternative chosen by creditors, the priorities set out in the Corporations Act 2001 remain and the quantum of entitlements will be equal under either alternative.

I note that the company did not have any employees and therefore no employee entitlements are outstanding.

12.12 Related Party Claims

Pursuant to the DOCA, the related entities will give up their right to participate in any dividend which maybe declared to ordinary unsecured creditors.

I am in receipt of one related party claim from Mr James Tonge in the amount of $2,654,314. I have not adjudicated on this claim at this point in the Administration but intend to do so prior to the second creditors meeting on 2 December 2009.

I have also received a claim from Mr Mark Tonge in the amount of $300,000 for unpaid wages. As above, I have not adjudicated on this claim at this point.

12.13 Secured Creditors Shortfall

Secured Creditors who suffer a shortfall in the sale of the assets will be entitled to claim as unsecured creditors for their estimated shortfall.

To date I have identified the following shortfall:

Property 155 Baileys Mountain Road, Upper Coomera – shortfall of $700,000.

12.14 Unsecured Creditors (est)

I have estimated the value of ordinary unsecured creditors based on the available information from company records and proofs of debt submitted.

The amounts listed are based on the RATA figures provided to me and do not include related party debts. Please note that should the Company be placed into Liquidation, the related parties would be entitled to prove for their debts assuming their validity. I note that this would include the balance of the employee entitlements as an unsecured debt in accordance with the provisions of the Corporations Act 2001.

Please note that I have not received a Formal Proof of Debt from the Australian Taxation Office.
  1. At least as revealed in the draft, the administrators’ disposition is to make a recommendation for the purposes of s 439A of the Corporations Act that it would be in the creditor’s best interests to accept the proposal for a deed of company arrangement.
  2. The draft deed of company arrangement includes, materially, cl 11 which provides:
11. DIRECTORS’ PROPOSAL

11.1 Sale Agreement

(a) The Director has currently been engaged in negotiations to sell on behalf of the Company in its capacity as trustee for the Barr Trust the properties situated at 2 Hansen Court and 21 Ford Road, Coomera having Real Property Descriptions Lots 11, 12 and 13 on SP176347, County Ward Parish Coomera having Title References 50595837, 50595838 and 50595839 (“the Coomera Properties) with a number of prospective purchasers.

(b) It is expected that the sale price of any such Contracts of Sale will provide, if not all necessary funds to pay all creditors, a substantial sum over and above what is due and payable to all six (6) secured creditors.

(c) The Administrators are authorised to execute on behalf of the Company any documents required to sell the Coomera Properties or any other property of the Company as well as to complete the transfers and transactions contemplated in the contracts, including any lease or rental assignments, subject to the terms and conditions of the relevant sale and purchase agreement.

(d) Pursuant to a Deed of Removal and Appointment of Trustee dated 19 July, 2009 the Company was removed as trustee of the Barr Trust and FUFM Pty Ltd ACN 131 905 274 was appointed the new trustee of the Barr Trust. FUFM Pty Ltd as trustee of the Barr Trust hereby agrees to pay all surplus funds from the sale of the Coomera Properties, after payment of all secured creditors, to the Administrators for the benefit of the creditors of the Company.

(e) It should be noted, that the Registered Owner of the Coomera Properties as noted in the Queensland Land Registry is the Company and that notwithstanding there is no notation on the Title to the Properties that the Company holds such Properties in the capacity as trustee, it does.

(f) The transfer of the Coomera Properties to FUFM Pty Ltd as trustee for the Barr Trust has not occurred due to the difficulties obtaining the relevant documents contemplated in clause 11.1(c) in relation to the sale of the Coomera Properties.

11.2 Director and related entities

(a) The Director and Related Entities will not prove for any priority claims under this Deed associated for entitlements associated with:

(i) unpaid salary;

(ii) unpaid annual leave;

(iii) redundancy;

(iv) compensation for loss of office; and

(v) unpaid expense claims.

(b) The Director and Related Entities will not prove for any dividend as Unsecured Creditors.

11.3 Directors’ contribution

(a) The Director will:

(i) pay to the Administrator the Contribution;
(ii) the Contribution will be paid upon the creditors of the Company resolving to accept the terms of this Deed with such contribution to be:
(A) 100,000 Contrabart dollars; and
(B) the sum of $4,400.00 in Australian currency.

11.4 Directors’ cooperation

(a) In addition to all requirements as detailed in the Corporations Act 2001 and its regulations, the Director will provide complete assistance and cooperation in relation to all aspects of the company and in particular the following:

(i) the Company’s potential claim against MKM Group Pty Ltd in relation to a claim for breach of contract relating to a joint venture agreement with the Company with an approximate claim value of $500,000.00;
(ii) the recovery of the security bond held by the Gold Coast City Council in the sum of $80,000.00;
(iii) the recovery of the debt of approximately $75,000.00 owed to the Company by a former employee, which is secured by a mortgage over a property at 46 Belrose Country Club, New South Wales.

11.5 Release of director

(a) This Deed releases and discharges the Director from an Admitted Claim where the Admitted Creditor receives the Admitted Creditors’ distribution under clause 9.3 and Admitted Creditors must accept their distribution under clause 9.3 in full and final satisfaction of all of their Claims.

(b) Upon termination of this Deed, the Director is forever released and discharged by each Creditor of all debts or claims Creditors may have or claim to have against the Director as at the day when the Administration began and each of them will, if called upon to do so, execute and deliver to the company such forms of release of any such claim as the Administrators require.
  1. Of the “available funds” identified at para 12 of the administrators’ draft report, it appears that the real property (Lots 11, 12 and 13 at Coomera), the cause of action against the MKM Group, the Gold Coast City Council security bond and the debt in respect of funds advanced for the acquisition a residential unit in the Belrose Country Club each form part of the trust fund of the Barr Trust. The offer by the present trustee, FUFM, to realise these assets and make the net proceeds available pursuant to the deed of company arrangement in substance offers nothing different to that which a liquidator of the company could claim from the trust fund on behalf of that company in the exercise of the right of reimbursement to which I have referred. Though it is evident from the draft report that the administrators are aware that the company acted as trustee of the Barr Trust, it is a significant omission from that draft report that this feature of the law of equity is not highlighted to the company’s creditors in the examination of the relative merits of the deed and liquidation.
  2. The related party claim which is to be subordinated is at least substantially that of Mr James Malcolm Tonge. In an affidavit read on 24 November 2009, Mr James Tonge describes himself as “unsecured creditor of [Bedroff] with debts owing to me from [Bedroff] in the sum of $2,344,314”. That claim is evidenced by a letter from Mr D G Hayes, chartered accountant of WMS Chartered Accountants dated 20 November 2009 exhibited to his affidavit. The letter materially recites:
I confirm that Bedroff Pty Ltd in its capacity as trustee for the Barr Trust is currently indebted to Mr James Tonge in the amount of $2,344,314.

This amount represents Mr Tonge’s unpaid beneficiary entitlements. I note that this liability arose on 1 July 2006 and remains unpaid as of today.

The sum referred to in this letter differs in amount from the related party claim from Mr James Tonge in the amount of $2,654,314 referred to in the draft of the administrators’ report. Though it is evident from his affidavit that he had read this draft report, Mr James Tonge did not seek to explain the difference in the figures in his affidavit. Nor was it otherwise explained.

  1. It would seem that Mr Hayes is either unaware of the change in July in the occupancy of the office of trustee or unaware of its impact. It is unnecessary to decide which. Mr James Tonge’s claim for “unpaid beneficiary entitlements” is a claim to be paid from the trust fund of the Barr Trust. It is the responsibility of the trustee for the time being of the Barr Trust to meet that claim insofar as the trust fund is in surplus and subject to any priority claim on that fund. The trustee of the Barr Trust is no longer the company but rather FUFM. Further, even assuming that there remains any surplus after the claims of secured creditors are met, unless and until the company’s entitlement to reimbursement, referred to above, is satisfied, it is impossible even to state what the trust fund of the Barr Trust comprises: see also in addition to Buckle’s case, CPT Custodian Pty Ltd v Commissioner of State Revenue (Victoria) [2005] HCA 53; (2005) 224 CLR 98 at 121, [51]. Again, the absence of any discrimination in the administrators’ draft report as between the claims of those such as the Deputy Commissioner who were and remain creditors of the company and those such as Mr James Tonge who, as beneficiaries, have a claim against the trust fund (such as it may be) of the Barr Trust is a significant omission.
  2. That employee entitlements are being foregone in the proposed deed of company arrangement is an offer the value of which is moot. As explicitly identified, they amount to no more than $7,000. Further, even this amount and the further statement in para 12.12 of the draft report that the administrators had “received a claim from Mr Mark Tonge in the amount of $300,000 for unpaid wages” is at odds with the statement in para 12.11 of the draft report where the administrators note that, “the company did not have any employees and therefore no employee entitlements are outstanding”. Further, under the terms of s 556(1A) of the Corporations Act, the amount of outstanding entitlements to Mr Mark Tonge in respect of the period when he was a director of the company which would enjoy any priority in the event of a winding up is subject to a cap of $2,000.
  3. It was for those who would wish to engender the satisfaction that it was in the interests of creditors for the administration to continue so as thereby to occasion an adjournment to resolve or explain such seeming inconsistencies. It has been known since 30 October 2009 that it would be necessary to engender such satisfaction on 24 November 2009.
  4. Also of concern in this regard is that it is evident from the draft administrators’ report that the company’s financial accounts were last prepared to 30 June 2006. Apparently, the administrators were informed that the accounts as at 30 June 2009 “will be prepared”. The fact that the case was to come back to court on 24 November 2009 does not seem to have lent any urgency to this task.
  5. According to the information in the draft report, the company made a trading profit in the 2006 financial year of $1,036,414. Further, at that time it had net assets of $3,079,098. Seemingly, that profit and those net assets were incurred or held by it in its then capacity as trustee of the Barr Trust. The present extent of information as to the dramatic change since then in the company’s fortunes is that the administrators have been advised that “a number of the assets and liabilities have been paid out since [the 2006 accounts] were prepared’ and that “the values will have altered due to property prices”. Beyond this, the present circumstance of the company is said in the draft report to be the result of the following contributing factors:
  6. For the purposes of the Deputy Commissioner’s application that the company be wound up in insolvency, the company is, by virtue of its non-compliance with the statutory demand, presumed to be insolvent: s 459C of the Corporations Act. The position revealed in the draft administrators report is that the company is truly insolvent and is so by what on even an optimistic view is a large margin.
  7. FUFM is not presently a party to the proposed deed of company arrangement. However, even it were, its offer to provide the net proceeds of the realisation of the assets mentioned is nothing more than an offer to provide that which in equity it is obliged in any event to provide by way of reimbursement to the company.
  8. Another benefit said to be a feature of the proposed deed of company arrangement is the full cooperation of Mr Mark Tonge with the deed’s administrators in the realisation of the assets identified. Mr Mark Tonge is though, in the event of a liquidation, obliged as a director to do whatever the liquidator reasonably requires of him to help in the winding up: see s 530A(3) of the Corporations Act. Failure to provide such assistance to a liquidator is an offence: s 530A(6) of the Corporations Act. It would not be appropriate for the purpose of deciding whether it is in the interests of creditors for the administration to continue to assume in favour of that course that Mr Mark Tonge would, in the event of a liquidation, commit an offence against the Corporations Act by providing to the liquidator something worse than that which he proposes to provide to the deed’s administrators by way of assistance.
  9. On analysis, what remains is the offer by Mr James Tonge to contribute under the deed “100,000 Contrabart Dollars”, should the deed be accepted. These have an estimated cash recovery value of $30,000 after allowing for realisation costs. This sum, however, would mostly be absorbed in administrators’ fees in the event that the Deed of Company Arrangement were to be accepted. The same comment may be made in respect of the sum of $4,400 which is all Mr Mark Tonge seems to be disposed personally to contribute under the terms of that deed.
  10. The Deputy Commissioner’s submissions highlighted the company’s right of reimbursement in equity set out above. He pointed to a series of cases which exemplify particular applications of that right as described in Buckle’s case, supra. It is unnecessary to detail these case examples. In terms of the enforcement of this right of reimbursement, he contrasted the absence of FUFM as a party to the proposed deed of company arrangement with the position in the event of a liquidation whereby the liquidator could enforce such a right on behalf of the company. Also highlighted on behalf of the Deputy Commissioner was the subjection of any claim which Mr James Tonge might have on the trust fund of the Barr Trust to the priority which the company would enjoy by way of reimbursement in respect of expenses incurred by it in the course of the administration of that trust. He submitted, and I agree, that when the effect of this priority was recognised, the offer made by Mr James Tonge was of no real value to creditors. Indeed, I would go further and question whether it is correct to regard Mr James Tonge as a creditor of the company at all, given the description of the nature of the debt in the accountant’s letter he exhibits to his affidavit.
  11. The Deputy Commissioner also noted the absence of any affirmative evidence as to the nature and extent of the trust fund of the Barr Trust. It may, of course, be that the assets which were held in terms of that trust comprise only those forming part of what are described in the draft administrators’ report as “available funds”. Perhaps the company’s accounts as at 30 June 2009 might more aptly be described as the accounts of the Barr Trust for that year if it were the case that the company did not trade in its own right. Again though, the persuasive onus lies not on the Deputy Commissioner. Mr Mark Tonge is the director of both FUFM and the company. His affidavit offers no enlightenment as to the full extent of the assets said to form part of the trust fund.
  12. The Deputy Commissioner also pointed to the absence of any particular evidence as to the nature and extent of voidable payments which a liquidator might recover for the benefit of creditors. He also drew attention to the releases found in cl 11.5 of the proposed deed of company arrangement and submitted that, having regard to City of Swan v Lehman Brothers Australia Limited (subject to a Deed of Company Arrangement) (2009) 260 ALR 199 (City of Swan v Lehman Brothers Australia Limited), such a term “may be contrary to the rights of creditors and render the term void”.
  13. As against this, attention was directed to the recommendation, albeit voiced only in a draft report, of the administrators that it is in the interests of the company’s creditors to accept the proposal for a deed of company arrangement. Yet the presence, in the draft report, of what I have described as significant omissions in terms of an analysis of the ramifications of the company’s having acted as the trustee of the Barr Trust detracts from giving weight to that recommendation. Indeed, without such an analysis, the draft report is apt to mislead as to the benefits of the proposed deed. The want of any appearance by or on behalf of the administrators meant that I did not have the benefit of submissions from them as to such ramifications or those omissions. In fairness to the administrators, it must be said that the report is but a draft. I do not in truth have any evidence as to the recommendation that the administrators are finally disposed to make or their reasons for such a recommendation.
  14. There is no presumption, arising from the presence of Pt 5.3A in the Corporations Act, in favour of allowing the administration to continue so as to allow a vote to be taken at the meeting proposed to be held on 2 December 2009. Rather, what is offered by that Part of the Corporations Act is an alternative to liquidation but an alternative which is regulated by the provisions of that Part. Of course the object of Pt 5.3A of the Corporations Act as expressed in s 435A must be borne in mind, but the question for immediate resolution remains that posed by another of the Part’s provisions, s 440A(2).
  15. In Australian Securities and Investments Commission v Storm Financial Limited (Receivers and Managers Appointed) (Administrators Appointed) (2009) 71 ACSR 81 at [20]-[27], I canvassed authorities touching upon the question of the judicial satisfaction to which s 440A(2) of the Corporations Act refers. I shall not repeat afresh what is there stated. The subsection requires that there be some persuasive case that it is in the interests of creditors for a company to continue under administration. On analysis, for reasons given above, the material now to hand reveals no such case. Rather, it reveals a situation where creditors may come to vote at the meeting on the false premise that there is a substantial benefit being conferred in relation to the deed by Mr James Tonge’s offer of subordination and more generally on the basis of an absence of consideration of the ramifications of the company’s having acted as the trustee of the Barr Trust.
  16. I note that the administrators observe in the draft report that: “it is inappropriate for the administration to end and the control of the company returned to its director. The company has ceased trading and has significantly more liabilities than assets”. So far as the objects of Pt 5.3A of the Corporations Act are relevant, that observation eliminates as a factor telling in favour of its being in the interests of creditors for the administration to continue that this course will “maximise the chances of the company, or as much as possible of its business, continuing in existence” (s 435A(a)).
  17. These matters are in themselves enough to dissuade me from satisfaction that it is in the interests of creditors for the company to continue under administration. There is another consideration that underscores that view.
  18. Having regard to cl 11.5 of the draft deed, it is in Mr Mark Tonge’s interests for the deed to be approved at a meeting of creditors. If lawful, that clause will confer upon him the benefit of wide releases if the deed were approved.
  19. In City of Swan v Lehman Brothers Australia, supra, it was the opinion of each of the judges comprising the Full Court that Pt 5.3A of the Corporations Act could not be employed by creditors so as to prevent the exercise by some of their number of such legal rights as they had against persons other than the company the subject of the deed of company arrangement: (see at [4], [92] and [151]). Clause 11.5 seeks to achieve this so far as Mr Mark Tonge is concerned. That clause seems to me to be an essential feature of the proposed deed. Though City of Swan v Lehman Brothers Australia Limited is presently the subject of as yet unheard applications for special leave to appeal to the High Court, I am for the moment bound to follow the views expressed in the Full Court. For this additional reason, I am not satisfied that it is in the interests of creditors for the company to continue under administration.
  20. It does not axiomatically follow that the winding up application must proceed. However, there was nothing put forward that might enliven a residual discretion to adjourn the hearing of the winding up application. To the contrary, it is in the public interest that an insolvent corporation be wound up.
  21. I note that Mr Gregory Michael Maloney, an official liquidator, has consented to be the liquidator of the company in the event that a winding up order is made. There was no submission made to me that I should instead appoint the present administrators. There are doubtless some advantages to be gained from the work which they have already undertaken but I do not assume that they will deprive Mr Maloney of that benefit. There may equally be some advantages in a fresh mind being brought to bear on the subject of recoveries for the benefit of creditors. I see no reason not to appoint Mr Maloney as requested by the Deputy Commissioner.
  22. It is no reflection on the submissions, which were helpful, made on behalf of the Deputy Commissioner by an officer (Ms Cameron) who had been authorised under the Taxation Administration Act 1953 (Cth) to appear to state that this right of appearance carries with it no entitlement to professional costs. That is in contrast to the position as to professional costs which would prevail in the event that the Deputy Commissioner chose to be represented by a lawyer in the employ of the Australian Government Solicitor or some other person enjoying a right of practice in this Court pursuant to the Judiciary Act 1903 (Cth). That the Commonwealth is thereby deprived of the benefit, such as it may be, of an order in respect of professional costs is a matter for the value judgement of the Commissioner in his general administration of taxation legislation and perhaps also a policy issue for the Attorney as First Law Officer. The Deputy Commissioner is entitled to an order in respect of filing fees and outlays.
  23. For these reasons, I make the following orders:
    1. Bedroff Pty Ltd ACN 079 158 955 be wound up in insolvency under the provisions of the Corporations Act 2001 (Cth).
    2. Gregory Michael Maloney, an official liquidator, be appointed liquidator of the company.
    3. The Plaintiff’s costs, be fixed in the sum of $1,137.31 and reimbursed in accordance in with s 466(2) of the Corporations Act 2001 (Cth).
I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan.

Associate:


Dated: 26 November 2009


Solicitor for the Plaintiff:
The Applicant appeared via an officer authorised on their behalf pursuant to the Taxation Administration Act 1953 (Cth)


Solicitor for the Defendant:
Mr A Delaney of Delaneys Lawyers

Date of Hearing:
24 November 2009


Date of Judgment:
26 November 2009

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