Earlier this week, on 30 November 2011, four of Nick Bolton’s Australian Style companies faced winding up application hearings in the Supreme Court of Victoria. As posted a few weeks ago, interestingly, the applicant was not the Deputy Commissioner of Taxation or any of the other parties those companies are reputed to have had disputes with recently. The applicant was As Staff Pty Ltd and the four companies the subject of the winding up applications were Bottle Domains Pty Ltd, Australian Style Group Pty Ltd, Australian Style IP Pty Ltd and ACN 102 378 316 Pty Ltd.

The winding up orders were not made. It is not yet known if the applications were dismissed or withdrawn or, more likely, adjourned for a hearing perhaps in a few weeks time. However what is clear from ASIC’s records is that the winding up orders were note made at the hearing.

For those of you who cannot recall where they have heard the name before, Nick Bolton is the young Melbourne entrepreneur who raked in a tidy $4.5m in 2009 by investing in BrisConnections, trying to have the company wound up, and then selling his voting rights.

Perhaps Mr Bolton is managing to pull another unorthodox manouver, and wriggle out of a tight spot profitably somehow. Watch this space.

The decision of Ferguson J in the Victorian Supreme Court handed down last week of Stolar Joinery (Aust) Pty Ltd v Charterarm Investments Pty Ltd (in liq) [2011] VSC 577 provides a good opportunity for review of the legal principles as to when a Court will terminate a winding up, and to consider what evidence an applicant should come armed with to succeed.

Section 482(1) of the Corporations Act 2001 (Cth) provides as follows –

(1) 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.

(1A) An application may be made by:

(a) in any case – the liquidator, or a creditor or contributory, of the company; or

(b) in the case of a company registered under the Life Insurance Act 1995 – APRA; or

(c) in the case of a company subject to a deed of company arrangement – the administrator of the deed.

In this case, the application was made by a corporate shareholder of the company in question, 7 months after the winding up order had been made.

Her Honour at [17] cited the principles set out by Barrett J in Metledge v Bambakit Pty Ltd (in liq) [2005] NSWSC 160 –

“The jurisdiction to terminate a winding up under s 482 is discretionary. The court may have regard to a range of factors. While not to be rigidly applied, the list of criteria set out in the judgment of Master Lee QC in  Re Warbler Pty Ltd (1982) 6 ACLR 526 provides useful guidance:

1. The granting of a stay is a discretionary matter, and there is a clear onus on the applicant to make out a positive case for a stay.

2. There must be service of notice of the application for a stay on all creditors and contributories, and proof of this.

3. The nature and extent of the creditors must be shown, and whether or not all debts have been or will be discharged.

4. The attitude of creditors, contributories and the liquidator is a relevant consideration.

5. The current trading position and general solvency of the company should be demonstrated. Solvency is of significance when a stay of proceedings in the winding-up is sought.

6. If there has been non-compliance by directors with their statutory duties as to the giving of information or furnishing a statement of affairs, a full explanation of the reasons and circumstances should be given.

7. The general background and circumstances which led to the winding up order should be explained.

8. The nature of the business carried on by the company should be demonstrated, and whether or not the conduct of the company was in any way contrary to ‘commercial morality’ or the ‘public interest’.

Her Honour, perhaps by way of emphasis, repeated that “in addition to these factors”, the court is required to take into account the interests of the public and whether the termination will be detrimental to commercial morality. Here, she noted that the principal factors for consideration were those relating to solvency and commercial morality. I will mainly focus below on the evidentiary issues as to solvency, save to note in passing that the commercial morality issues in this case arose from the director having resisted many requests from the liquidator that he provide the Company’s books, records and full details of the Company’s assets and there whereabouts. So much so that the liquidator filed a report with ASIC about the director’s conduct. The director had also continued litigation in the company’s name in VCAT, post-liquidation, including getting 19 days into the trial, before it was stayed.

I will not rehash the facts of this case, as aside from a useful reminder of the relevant legal principles to be applied, its significance is largely illustrative. However it is worth noting that while her Honour found that the Company was “technically solvent”, she was not willing to find this was sufficient to justify a termination of the winding up having regard to this factor. The Company had been insolvent in the past and there was insufficient evidence to establish that it would be anything more than barely solvent were it to recommence trading. The liquidator’s evidence was that the Company had been insolvent from June 2007, there was evidence of a significant number of dishonoured cheques from May 2008, and prior to the litigation which the director claimed caused all the trouble, the Company was trading beyond the  limit of its bank account.

I pause to note her Honour’s next observations, at [49]. Ferguson J remarks that given the historical (borderline) performance of the Company, evidence was required about how the business would run both operationally and financially were the liquidation terminated. Her Honour usefully indicated that what was required by way of evidence was –

• a business plan,
• cash flow forecasts, and
• more detailed information about support from third parties (as to their identity, level of support and ability to provide that support).

Her Honour remarked that where effectively the Court’s imprimatur is sought to permit a company to begin trading again, she did not think it acceptable to brush aside considerations such as the likely position of future creditors and persistent failure by the director of the company to comply with statutory obligations.

In many of these cases. evidence adduced to make out a case for a stay or termination of a winding up does not go so far as her Honour has outlined. Applicants would be well-advised to take heed of her Honour’s express indications in this judgment as to how they can go about marshalling the evidence to support a termination application, and how far that evidence will need to go to provide sufficient comfort to the Court as to the likely well-being of creditors and of the public moving forward, were it to permit the Company to come out of a winding up and recommence trading.

It was being reported in the Age yesterday that settlement discussions were afoot in the multi-case litigation on foot in the Victorian Supreme Court concerning the failed margin lending house Primebroker Securites, some of its principals and interested parties, and the ANZ Bank. Prior to its collapse in 2008, Primebroker and ANZ had been counterparties in securities lending arrangements.

On the back of its expensive settlement with Opes Prime’s liquidators in early 2009, ANZ was facing another unenviable and expensive legal battle, fighting on several fronts. The Chimaera parties were claiming hundreds of millions of dollars in damages against ANZ on several grounds, including alleging that ANZ had wrongfully reneged on a deal of financial support back in 2008, and that ANZ had acted wrongfully in appointing receivers to Primebroker. The liquidators of Primebroker were also seeking recovery from ANZ of some $200 million in payments it had received from the failing company in the months before its collapse. It was reported by the Age that taken together, ANZ faced total claims in the vicinity of $350 million. (See the full Age article here).

Today, the Age has reported that ANZ has agreed to pay $20.5 million cash to the liquidator of Primebroker Securities. It is reported that as part of the deal, ANZ will release numerous properties owned by the principals of Primebroker, Mr Catalano and Mr Pattison, but which the bank had claimed as security. It is also reported that ANZ will not prove in the liquidation for the estimated $150 million it claims still to have been owed when Primebroker collapsed in July 2008. It is alleged that ANZ will also allow its receivers Paul Kirk and Stephen Longley of PricewaterhouseCoopers to hand the liquidator of Primebroker Laurie Fitzgerald of BDO, their book of Primebroker receivables, which it is said could generate a further $20 million. (See the full Age article here.)

Two weeks ago, on 7 November 2011, Davies J of the Victorian Supreme Court handed down an interesting decision in SC Capital Pty Ltd & Anor v Primebrokers Securities Ltd (in liq) [2011] VSC 565. Effectively, it answers the question raised in the title of this post in the affirmative.

An appeal had been lodged from the judgment and orders of an Associate Judge given on 31 August 2009. The receivers for Primebrokers (appointed by the ANZ Banking Group Ltd (ANZ)) had served statutory demands upon the plaintiffs. The plaintiffs (SC Capital Pty Ltd and Cablerand Pty Ltd) had successfully applied to the Associate Judge under s 459G of the Corporations Act 2001 (Cth) (the Act) for orders setting aside the statutory demands. The grounds for their application to set aside included – (1) that the receivers had not been validly appointed and therefore had no legal right to serve the demands on behalf of Primebrokers, and (2) that the plaintiffs had an offsetting claim against the ANZ, the appointor of the receivers for wrongful conduct. His Honour held that the claim was not offsetting within the meaning of s 459H as it was not against Primebrokers. However his Honour did find on the evidence before him that the receivers were not validly appointed. The statutory demands were set aside on that ground.

The receivers appealed that decision. Interestingly, the ANZ also appealed that decision, even though the ANZ was not a party to. and did not appear, in the applications before the Associate Justice. ANZ sought to rely on r 77.06 of the Supreme Court Rules which provides at (1) that “any person affected” by a judgement or orders may appeal decisions of an Associate Justice to a judge of the Court.

The plaintiffs also applied to have various consent orders made on 16 July 2010 set aside, including orders granting special leave to Primebrokers and ANZ to rely on additional evidence. Her Honour explained that those orders had been made in the context of the broader litigation on foot between the parties. In general terms, the receivers seek a declaration as to their valid appointment, a broader group of which the plaintiffs are part, referred to as the “Chimaera parties” had sued ANZ, the receivers, and two other mortgagees in possession appointed by ANZ of certain of Primebrokers properties. The Chimaera parties seek damages for alleged wrongful conduct, including the invalid appointment of the receivers. The trial of all of these proceedings commenced on 24 October 2011. Interestingly, as I am about to announce in a separate post, it has been reported today that those principal proceedings were the subject of a settlement reached yesterday.

This case was a discrete hearing before Davies J of an application the plaintiffs filed to set aside the consent orders previously made, and for the dismissal of ANZ’s notices of appeal. This application raised four principal issues for determination –

(1) Whether ANZ had standing under r 77.06(1) of the SCR to bring the appeals as a “person affect” by the “judgment and orders” of the Associate Justice;

(2) Whether leave to ANZ to intervene in the appeals should be set aside because ANZ does not satisfy the test for intervention;

(3) Whether the orders granting special leave to rely on additional evidence should be maintained, and

(4) Whether the Court should entertain the application to set aside the orders of 16 July 2010.

(1) “Person affected” – Senior counsel for the plaintiffs argued inter alia that the order setting aside the statutory demands had no relevant legal effect on ANZ because the application did not finally determine any rights of the parties, and that therefore ANZ was not a “person affected” by the judgment and orders. However Davies J took the view that the relevant question was whether ANZ had a direct interest in the matters in controversy in the s 459G application, as distinct from an interest that is indirect or consequential (see [7]). Her Honour held it was manifest that ANZ had a direct interest as the matters in controversy are ANZ’s rights and liabilities. The Associate Justice had considered ANZ’s alleged “wrongful conduct. He had determined that ANZ had not validly appointed the receivers to Primebrokers’ property. This was to be re-agitated upon the receivers’ appeal, which would again involve the determination of ANZ’s rights and liabilities as the foundation for the orders. Moreover, the orders setting aside the statutory demands directly impacted ANZ’s rights as appointor of the receivers and as chargee (see [8]).

(2) Leave to intervene – The plaintiffs sought revocation of leave to ANZ to intervene, relying on Levy v The State of Victoria [1997] HCA 31; (1996-1997) 189 CLR 579. Her Honour was not sympathetic to their arguments (see [10-12]).

On the remaining two issues, her Honour upheld the order granting special leave to lead additional evidence, and did entertain the application.

News has broken today of a settlement reached in the broader litigation between the parties, outline above. That will be the subject of a separate post to which I will now turn.

In less than 2 weeks, on 30 November 2011, four of Nick Bolton’s Australian Style companies face winding up application hearings in the Supreme Court of Victoria. Interestingly, the applicant is not the Deputy Commissioner of Taxation or any of the other parties those companies are reputed to have had disputes with recently. The applicant is As Staff Pty Ltd and the four companies the subject of the winding up applications are Bottle Domains Pty Ltd, Australian Style Group Pty Ltd, Australian Style IP Pty Ltd and ACN 102 378 316 Pty Ltd.

For those of you who cannot recall where they have heard the name before, Nick Bolton is the young Melbourne entrepreneur who raked in a tidy $4.5m in 2009 by investing in BrisConnections, trying to have the company wound up, and then selling his voting rights.

It will be interesting to see if winding up orders are made on the first return date. Perhaps Mr Bolton will manage to pull another unorthodox manouver, and wriggle out of a tight spot profitably somehow. Watch this space.