El-Fahkri, in the matter of Elfah Pty Ltd (in liq) [2002] FCA 1469 (19 November 2002)

Last Updated: 27 November 2002

FEDERAL COURT OF AUSTRALIA

El-Fahkri, in the matter of Elfah Pty Ltd (in liq) [2002] FCA 1469

CORPORATIONS - winding up - termination - factors to consider

Corporation Act 2001 (Cth) s 482(1)

Aetna Properties Pty Ltd v G A Listing and Maintenance Pty Ltd (1994) 13 ACSR 422 applied

Alexander v Cambridge Credit Corporation Ltd [1985] 2 NSWLR 685 applied

Calgary and Edmonton Land Co Ltd (in liq), In re [1975] 1 WLR 355 applied

Chan v Austgrove Enterprises Pty Ltd (in liq) [1993] 12 ACSR 427 applied

Telescriptor Syndicate Ltd, Re [1903] 2 Ch 174 applied

IN THE MATTER OF ELFAH PTY LTD (IN LIQUIDATION)

AKRAM ADONISE EL-FAHKRI, DANIEL EL-FAHKRI and

JOSEPH EL-FAHKRI v ELFAH PTY LTD (in liquidation)

V 3216 of 2002

FINKELSTEIN J

19 NOVEMBER 2002

MELBOURNE

1 IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V 3216 of 2002

IN THE MATTER OF ELFAH PTY LTD (IN LIQUIDATION)

BETWEEN:	AKRAM ADONISE EL-FAHKRI, DANIEL EL-FAHKRI and JOSEPH EL-FAHKRI Plaintiffs
AND:	ELFAH PTY LTD (IN LIQUIDATION) Defendant
JUDGE:	FINKELSTEIN J
DATE OF ORDER:	19 NOVEMBER 2002
WHERE MADE:	MELBOURNE

Upon the plaintiffs by their counsel undertaking that they will instruct their solicitors (Messrs Deacons) to hold the sum of $20,000 which they have deposited in the firm's trust account to apply so much of that sum as will be necessary to pay to the liquidator the balance of his costs and expenses in acting as the liquidator of Elfah Pty Ltd (in liquidation)

THE COURT ORDERS THAT:

The winding up of Elfah Pty Ltd (in liquidation) be terminated.

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

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	V 3216 of 2002

IN THE MATTER OF ELFAH PTY LTD (IN LIQUIDATION) (ACN 007 392 957)

BETWEEN:	AKRAM ADONISE EL-FAHKRI, DANIEL EL-FAHKRI and JOSEPH EL-FAHKRI Plaintiffs
AND:	ELFAH PTY LTD (IN LIQUIDATION) Defendant

JUDGE:	FINKELSTEIN J
DATE:	19 NOVEMBER 2002
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

1 Elfah Pty Ltd (in liquidation) was wound up in insolvency. The petitioning creditor, Sky Channel Pty Ltd, had obtained a default judgment for $7,733.40 from the Local Court in New South Wales, served a statutory demand on the company based on that judgment and, when Elfah Pty Ltd (in liquidation) did not pay the judgment debt, obtained the winding up order.

2 Mr Akram El-Fahkri and his two brothers, Daniel and Moses, incorporated Elfah Pty Ltd in 1990 and hold its issued shares. Elfah Pty Ltd (in liquidation) is a trading company used to hold investments for the three El-Fahkri brothers. The assets include interests in real estate, shares and taxi licences. The liquidator has valued the assets at several million dollars. The company has two secured creditors, the Commonwealth Bank and the Arab Bank, whom the company respectively owes $4,171,025 and $2,236,841. Apart from the costs to date of the liquidation, the company does not appear to have any outstanding liabilities, the debt to the petitioning creditor having been paid. If the liquidation runs its course, then there will be enough to pay the two banks, discharge the expenses of the liquidation and leave a substantial surplus for the shareholders. The surplus may be as high as $6 million.

3 The shareholders have issued an application seeking to terminate the winding up, with an undertaking to provide for the liquidator's costs and expenses. I have the power to make such an order under s 482(1) of the Corporations Act 2001 (Cth) which provides that:

"At any time during the winding up of a company, the Court may, on application, make an order staying the winding up either indefinitely or for a limited time or terminating the winding up on a day specified in the order."

4 Section 482(1A) gives standing to a contributory of the company in liquidation to make the application. Section 482(2) permits the court to direct the liquidator of the company to give a report. On an earlier occasion, an order required the liquidator to report as to the solvency of the company. That report is now to hand.

5 In In re Calgary and Edmonton Land Co Ltd (in liq) [1975] 1 WLR 355, Megarry J set out most of the factors that the court must consider before making an order under s 482(1). First, I must consider the interests of the creditors. That presents no difficulty in this case. In the first place there are only two creditors. They do not object to a termination of the winding up. Second, even if those creditors had objected, little weight would be given to the objection because the parties have established that the creditors will, in due course, be paid in full.

6 I should also consider the position of the liquidator. He has a statutory right to receive his costs, charges and expenses in priority to other claims in the liquidation and he has a charge or lien over the assets of the company to secure that priority. Usually it would not be right to stay or terminate a liquidation unless the liquidator's position is protected.

7 Then there are the members of the company. It is generally accepted that a stay or termination should not be granted unless each member consents (or perhaps does not object) to giving up his right to take the surplus assets on the completion of the liquidation. Here again there is no difficulty as the members are the applicants for the termination order.

8 In addition to Megarry J's three factors, it is also necessary to consider the public interest. That is, the court must consider not only whether the stay or termination is for the benefit of creditors and members but also whether it is conducive or detrimental to commercial morality and to the interests of the public at large: see Re Telescriptor Syndicate Ltd [1903] 2 Ch 174, 180; Chan v Austgrove Enterprises Pty Ltd [1993] 12 ACSR 427. Clearly this is not one of those cases where the public interest would be injured by making the order sought.

9 The power to make an order under s 482(1) is discretionary. In England it has been held that not only does it lie on those who seek a stay (there being no power to order a termination) to make out a sufficient case for it is also necessary for the applicant to "make out a case that carries conviction": In re Calgary and Edmonton Land Co Ltd (in liquidation) [1975] 1 WLR at 358-359. The position in Australia is not so strict. In cases such as Alexander v Cambridge Credit Corporation Ltd [1985] 2 NSWLR 685 and Aetna Properties Pty Ltd v G A Listing and Maintenance Pty Ltd (1994) 13 ACSR 422 it has been held that this court does not have to find special reasons for a stay or termination. But there must be some valid reason why it is appropriate to make the order rather than let the liquidation take its normal course.

10 This is a case where it is appropriate to terminate the winding up. There will be no prejudice to any creditor if the order is made and all the contributories seek the order. If the order is not made the members' financial position will be adversely affected, because the liquidator will be required to dispose of sufficient of the company's assets to pay out the debts. Although the remainder of the assets can be distributed in specie the members will lose the benefit associated with holding valuable capital assets.

11 I also have regard to the fact that the debt upon which the winding up order was based appears not to be the debt of the company but of a related entity. On this aspect I do not rely solely on Mr Fahkri's assertion; his evidence is supported by the liquidator.

12 Up to this point I have put to one side any discussion of how it came about that such a substantial company came to be wound up for the non-payment of a relatively small debt. Mr Fahkri put forward an explanation in his affidavit. He said that he was unaware of the existence of the proceedings in the Local Court. Obviously when he received the statutory demand he became aware of the Local Court proceedings, yet he took no step to have the judgment set aside. Moreover, he said that he "did not take the statutory demand as seriously as [he] should have, as [he] did not fully comprehend the consequences for Elfah if it was wound up." He explained that he believed that the judgment debt could be paid after the date of the winding up and that the payment of the debt would result in the liquidation being terminated.

13 I must record my doubt about the accuracy of this explanation. Clearly Mr Fahkri is an experienced businessman who, on behalf of his brothers and himself, has invested wisely and accumulated a good deal of wealth. This rather suggests that Mr Fahkri would have a better understanding than he is prepared to concede of the consequence of failing to comply with a statutory demand. That said, I do not think that this is a sufficient reason to refuse the order.

I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.

Associate:

Dated: 26 November 2002

Counsel for the Plaintiffs:	Mr M Galvin
Solicitor for the Plaintiffs:	Deacons
Counsel for the Liquidator:	Mr C Mackay
Solicitor for the Liquidator:	Collins & Stephens
Date of Hearing:	19 November 2002
Date of Judgment:	19 November 2002