Workers Compensation Nominal Insurer v Perfume Empire Pty Ltd [2011] NSWSC 299 (15 April 2011)

Last Updated: 18 April 2011

Supreme Court New South Wales

Case Title:	Workers Compensation Nominal Insurer v Perfume Empire Pty Ltd
Medium Neutral Citation:	[2011] NSWSC 299
Hearing Date(s):	11 April 2011
Decision Date:	15 April 2011
Jurisdiction:
Before:	Barrett J
Decision:	1. Direct that the plaintiff do, on or before 20 April 2011, serve on each of (a) the Commissioner of Taxation; (b) Perfume Network of Australia Pty Ltd; (c) the entity described in the affidavit of G C Woodgate sworn 8 April 2011 as "MSI Taylor"; and (d) the entity described in that affidavit as "Xchanging" a copy of each of the originating process filed on 7 February 2011, the interlocutory process filed on 11 April 2011, the said affidavit and the court's reasons of 15 April 2011. 2. Direct that the interlocutory process stand over to 9.30am on 2 May 2011 before me.
Catchwords:	CORPORATIONS - voluntary administration - administration imposed when application for winding up in insolvency pending - administration likely to result in winding up - plaintiff in winding up proceeding seeks order terminating administration - defendant through administrator consents - if administration terminated and winding up later ordered by the court an earlier "relation-back day" will apply for liquidator recovery purposes - significantly greater recoveries potentially available if earlier date applies - identified creditors would be affected if earlier date rather than later applied - procedural fairness requires that those creditors have an opportunity to be heard - application adjourned with direction that those creditors be served
Legislation Cited:	Corporations Act 2001 (Cth), Part 5.3A, ss 9, 463A, 513A, 513C, 588FA, 588FC, 588FE, 588FF
Cases Cited:	BP Australia Ltd v Brown [2003] NSWCA 216; (2003) 58 NSWLR 322 Cameron v Cole [1944] HCA 5; (1944) 68 CLR 571 Chief Commissioner of State Revenue v Rafferty's Resort Management Pty Ltd [2008] NSWSC 452; (2008) 66 ACSR 199 Re Octaviar Ltd (formerly MFS Ltd) [2008] QSC 216.
Texts Cited:
Category:	Procedural and other rulings
Parties:	Workers Compensation Nominal Insurer - Plaintiff Perfume Empire Pty Ltd - Defendant
Representation
- Counsel:	Counsel: Mr J T Johnson - Plaintiff Mr P M Stern - Defendant
- Solicitors:	Solicitors: PH Legal - Plaintiff Addisons Lawyers - Defendant
File number(s):	2011/39721
Publication Restriction:

Judgment

1. On 7 February 2011, the plaintiff filed an interlocutory process by which it sought an order that the defendant be wound up in insolvency and an order for the appointment of a liquidator.
   
2. The matter came before the Registrar on 17 March 2011, 24 March 2011 and 31 March 2011 and was on each occasion adjourned - on the last occasion to 11 April 2011.
   
3. On 28 March 2011, the defendant became subject to voluntary administration under Part 5.3A of the Corporations Act 2001 (Cth) by virtue of a determination of its sole director in terms of s 436A(1).
   
4. When the winding up application came before me on 11 April 2011, the plaintiff was given leave to file and move at once on an interlocutory process by which it sought an order that the Part 5.3A administration "end forthwith" and an order that, pending determination of the winding up application, the defendant be restrained from making any new appointment under Part 5.3A.
   
5. The defendant appeared on that occasion by Mr Stern, solicitor, who was instructed by the voluntary administrator. Mr Stern filed an affidavit of the administrator, Mr Woodgate, and indicated that the defendant, through its administrator, consented to the grant of the relief the plaintiff sought.
   
6. Mr Woodgate's assessment of the defendant's position may be summarised as follows:
   

1. On 29 March 2011, the defendant's secured lender appointed receivers in exercise of powers given by its fixed and floating security.

2. On 30 March 2011, the defendant ceased trading at all but about five of its 34 retail perfume outlets in New South Wales, Victoria, Queensland, South Australia, Western Australia and the Northern Territory and at its New South Wales warehouse.

3. The employment of most of the 246 staff was terminated by the receivers.

4. The receivers sent all remaining stock to the five retained retail stores and conducted a clearance sale. All those shops have now been closed.

5. Mr Woodgate has formed an opinion that the defendant was insolvent at 31 August 2010, and perhaps earlier. He gives comprehensive reasons in his affidavit for that view. He is also of the view that the defendant continues to be insolvent.

6. Mr Woodgate has identified payments which represent his preliminary estimate of "unfair preferences" within s 588FA which might be recoverable upon application made by a liquidator under s 588FF. He has made estimates of recoveries on the basis of two alternative dates as the "relation-back day" referred to in s 588FE(2).

7. Mr Woodgate estimates that, if the relation-back day is 28 March 2011 (as it will be if creditors voluntary winding up arises as a sequel to the current voluntary administration), a liquidator will have a good claim to recover as unfair preferences a total of about $1,191,550. If, on the other hand, the relation-back day is 7 February 2011 (as it will be if a winding up order is made on the plaintiff's pending application and there was not, immediately before the order is made, any voluntary administration in place), the aggregate for which a liquidator would have a good claim will be of the order of $1,731,550.

8. There are no assets in Mr Woodgate's hands. Liquidator recoveries appear to represent the only possibility of return to creditors in any winding up.

7. The different relation-back days will be produced by the s 9 definition of "relation-back day", coupled with the operation of s 513C(b) in one case and s 513A(e) in the other.
   
8. It follows from what Mr Woodgate says about potential unfair preference recoveries that some $540,000 more might be obtained for creditors if the relation-back day is 7 February 2011 rather than 28 March 2011.
   
9. According to Mr Woodgate's assessment, the voluntary administration, if it continues, will inevitably culminate in a decision of creditors that the company be wound up. No deed of company arrangement proposal has been forthcoming. Mr Woodgate's view, already mentioned, is that the company is insolvent. No outcome other than winding up is foreseeable.
   
10. In these circumstances, both the plaintiff and the defendant (through its administrator) say that the interests of the defendant's creditors will be enhanced by action of the court to terminate the existing voluntary administration and then, at a later point, to hear the plaintiff's winding up application which, it is said, must inevitably be successful. Such action of the court will, it is said, benefit creditors by causing the relation-back day to be 7 February 2011 rather than 28 March 2011.
    
11. Mr Johnson of counsel, who appeared for the plaintiff, referred to a number of decided cases in which applications of the present kind have been made. The most recent of them are Chief Commissioner of State Revenue v Rafferty's Resort Management Pty Ltd [2008] NSWSC 452; (2008) 66 ACSR 199 and Re Octaviar Ltd (formerly MFS Ltd) [2008] QSC 216.
    
12. There is, however, an important procedural matter that requires attention.
    
13. Mr Woodgate's affidavit shows that, whichever of the two dates is eventually the relation-back day (assuming that either is), two particular creditors will be the likely targets of any attempted preference recoveries by a liquidator. They are the Commissioner of Taxation and Perfume Network of Australia Pty Ltd. If the relation-back day were 28 March 2011, potential recoveries from them would be of the order of $640,000 and $480,000 respectively. If the relation-back day were 7 February 2011, the respective figures would be approximately $980,000 and $660,000. Mr Woodgate mentions two other creditors for much smaller amounts for whom the difference would also produce consequences. They are MSI Taylor and Xchanging. In one case, potential recoveries would increase from $35,000 to $45,000 and in the other from $10,000 to $20,000.
    
14. If, as the administrator assesses, the company was insolvent as long ago as August 2010 and the quantum of unfair preferences under s 588FA will be significantly greater if the relation-back day of a winding up is 7 February 2011 rather than 28 March 2011, the result will be that, via s 588FC, s 588FE and s 588FF, the court may make, on the application of the liquidator, orders directing the recipients of those preferences to pay to the company amounts equal to that significantly greater quantum. Any action of the court that causes the earlier date rather than the later to be the relation-back day will therefore be to the detriment or, at least, potential detriment of the four creditors I have mentioned.
    
15. In that respect, the effect of the action the court is now asked to take will, in concept, be the same as if the court had, pursuant to s 588FF(3), expanded the class of potential defendants to liquidator recovery actions by extending the limitation period.
    
16. This brings to the fore the natural justice and procedural fairness considerations discussed by the Court of Appeal in BP Australia Ltd v Brown [2003] NSWCA 216; (2003) 58 NSWLR 322. In that case, it was held, on the basis of cases such as Cameron v Cole [1944] HCA 5; (1944) 68 CLR 571, that a clearly identified party with a substantial interest in the enlargement of the recovery possibilities for a liquidator that would result from an extension of the limitation period should in normal circumstances be given an opportunity to be heard before the court ordered such an extension.
    
17. Likewise in this case, the fact that termination of the voluntary administration and its resultant unavailability as a platform for the launching of a creditors voluntary winding up attracting the later relation-back day will produce potentially adverse effects for identified persons (because opening the way for possible imposition of a regime under which an earlier relation-back day applies under a court-ordered winding up) means that those persons deserve an opportunity to be heard.
    
18. It is significant that the persons who may be adversely affected are known and identified. It is not as if the different date will affect some unascertainable group.
    
19. In these circumstances, the proper course is to decline for the time being to proceed further with the plaintiff's application for an order terminating the voluntary administration and to make directions as follows:
    

1. Direct that the plaintiff do, on or before 20 April 2011, serve on each of
(a) the Commissioner of Taxation;
(b) Perfume Network of Australia Pty Ltd;
(c) the entity described in the affidavit of G C Woodgate sworn 8 April 2011 as "MSI Taylor"; and
(d) the entity described in that affidavit as "Xchanging"
a copy of each of the originating process filed on 7 February 2011, the interlocutory process filed on 11 April 2011, the said affidavit and the court's reasons of 15 April 2011.

2. Direct that the interlocutory process stand over to 9.30am on 2 May 2011 before me.

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