In the matter of Dungowan Manly Pty Limited (in liquidation)

1. [1]

   By Interlocutory Process filed on 2 June 2017, the Applicants, Mr Simon Cathro and Mr Christopher Darin as joint and several liquidators of Dungowan Manly Pty Ltd (in liq) (“Company”) seek directions under s 511 of the Corporations Act 2001 (Cth). Although that section has now been replaced by Division 90 Subdiv B of the Insolvency Practice Schedule (Corporations), from 1 September 2017, it has continuing operation in respect of this application which was brought before that date, by reason of s 1617 of the Corporations Act: Re Mackie Group Pty Ltd (in liq) (in its capacity as trustee of the Jupelina Unit Trust) [2017] VSC 477 at [8]–[9]; Re Octaviar Administration Pty Ltd (in liq) [2017] NSWSC 1556 at [5]. Mr and Mrs McLaughlin, who are self-represented, were heard, by leave, in the application under r 2.13 of the Supreme Court (Corporations) Rules 1999 (NSW).

2. [2]

   I summarised the scope of the Court’s power to give directions under former s 511 of the Corporations Act in Re MF Global Australia Ltd (in liq) [2012] NSWSC 994; (2012) 267 FLR 27 at [8] as follows:

3. [3]

   A liquidator’s power to approach the court for directions under this section is intended to facilitate the liquidator’s functions and this power is interpreted widely to give effect to that intention: Re One.Tel Network Holdings [2001] NSWSC 1065; (2001) 40 ACSR 83; (2002) 20 ACLC 326. A direction under this section protects a liquidator from liability for breach of duty or unreasonable behaviour if full disclosure was made to the court: Re Ansett Australia Ltd [2001] FCA 1439; (2001) 39 ACSR 355; 19 ACLC 1678 at [59]; Re Ansett Australia Ltd and Korda [2002] FCA 90; (2002) 115 FCR 409; 40 ACSR 433; Re Green (as voluntary administrators of Bevillesta Pty Ltd) [2011] NSWSC 417; (2011) 254 FLR 324; 84 ACSR 215 at [10].

Factual background and affidavit evidence

1. [4]

   This application results from earlier litigation in this Court. The facts which give rise to the litigation are summarised in earlier decisions of the Court, including decisions of Ward J (as her Honour then was) in McLaughlin v Dungowan Manly Pty Ltd [2010] NSWSC 187, Pembroke J in McLaughlin v Dungowan Manly Pty Ltd [2011] NSWSC 215; (2011) 82 ACSR 582 and the Court of Appeal in Dungowan Manly Pty Ltd v McLaughlin [2012] NSWCA 180; (2012) 90 ACSR 62; my decisions in Re Dungowan Manly Pty Ltd (in liq) [2015] NSWSC 491; (2015) 105 ACSR 648 (“May 2015 judgment”) and Re Dungowan Manly Pty Ltd (in liq) [2015] NSWSC 915 (“July 2015 judgment”); and Brereton J, who was dealing with a previous application for remuneration by the liquidators, in Re Dungowan Manly Pty Ltd [2016] NSWSC 1346. I will not repeat the history of events in full, which emerges from those judgments. I will, however, note some critical features of that history.

2. [5]

   The Company was the owner of a company title home unit block situated in Manly and, under the Company’s articles of association, a shareholder’s holding of a specific class of shares in the Company conferred a right to occupy a specific unit within the block. Mr and Mrs McLaughlin purchased shares entitling them to occupy the then unit 4 in that block in 1996. A proposal to renovate and redevelop that block and to convert it from company to strata title was put to the Company’s members in September 2006 and the Company struck a special levy in 2007 to partly fund that proposal, which was also partly funded by borrowed monies. That proposal was opposed by Mr and Mrs McLaughlin. Several proceedings were brought by Mr and Mrs McLaughlin against the Company in the period from 2006 in respect of issues in relation to the proposed redevelopment of the unit block. Broadly, Mr and Mrs McLaughlin alleged that the Company’s conduct was oppressive to them and sought relief under s 232 of the Corporations Act and also alleged the Company had breached articles of association in respect of several matters.

3. [6]

   In February 2010, by her judgment in McLaughlin v Dungowan Manly Pty Ltd above, Ward J (as her Honour then was) ordered the Company to pay to Mr and Mrs McLaughlin damages in the amount of $200,000 and interest in the amount of $14,769.97 in respect of an overpaid levy and costs.

4. [7]

   In the period between 2010 and 2012, shareholders in the Company, other than Mr and Mrs McLaughlin, entered into share surrender agreements with the Company which provided for the transfer of units in the property to the shareholders. Mr and Mrs McLaughlin subsequently also entered into such an agreement, with some modifications. Recital F of the share surrender agreements noted that:

5. [8]

   Clause 1 of the share surrender agreements in turn provides for the surrender of the shares to the Company on the Completion Date or for entry into an unconditional contract of sale, reflecting the two approaches contemplated by Recital G, and cl 2 provides for completion to take place on 30 April 2010 or such other date as the Company agreed in writing from time to time (defined as the “Completion Date"). Clause 12 provides that:

6. [9]

   Clause 6 of the share surrender agreements provides that:

7. [10]

   Clause 7 of the share surrender agreements provides that, save as provided in that clause and cl 8, the liability of the relevant shareholder and the Company was to be determined on the basis of a reconciliation of assets and liabilities of the Company as at 28 February 2010. Clauses 8 and 9 of the share surrender agreements in turn provide:

8. [11]

   It is significant, for this application, that cl 9 of the share surrender agreements made plain that those agreements therefore did not displace or otherwise affect any obligation of a shareholder to contribute to the Company’s costs and expenses of the proceedings or the appeal and contemplated that effect could be given to shareholders’ obligation to make such contributions “by way of levy or otherwise under the Company’s constitution”.

9. [12]

   Relevantly to this application, article 4 of the Company’s articles of association in turn permits the Company’s directors to make a levy on holders of shares in the Company for “expenses charges and outgoings", including provision for a shortfall levy if a levy is not paid by some shareholders. Relevant expenses, charges and outgoings are specified in several categories. The categories include, inter alia, expenses of carrying on the Company including directors' fees, accountancy and legal charges, management charges, caretakers’ expenses, cleaners’ expenses and lift maintenance and replacement (article 4(h)); all charges and outgoings which the board in its discretion considers expedient to maintain or enhance the value of the property (article 4(j)); and such amount as the board in its discretion considers desirable to provide for further repairs or other contingencies (article 4(k)). In the May 2015 judgment, I accepted the liquidator’s submission that a voluntary administrator has the same power as the Company’s directors to issue a levy under that article, by reason of s 437A(1)(d) of the Corporations Act. Although article 4 provides for the directors of the Company to determine to make the relevant levy, that section provides that an administrator may perform any function, and exercise any power that, relevantly, any of the Company's officers could perform or exercise if the Company was not under administration.

10. [13]

    In his judgment delivered in McLaughlin v Dungowan Manly Pty Ltd above, Pembroke J held that the share surrender agreements were not immediately effective to bring about the surrender and cancellation of shares in the Company, by reason that:

11. [14]

    By letter dated December 2011, the Company advised shareholders of what it described as a “useful outcome” of Pembroke J’s judgment, namely that it gave:

12. [15]

    The notes to the financial statements of the Company for the year ended 30 June 2011 referred to the effect of the share surrender agreements as follows:

13. [16]

    On 19 June 2012, in Dungowan Manly Pty Ltd v McLaughlin [2012] NSWCA 180; (2012) 90 ACSR 62, the Court of Appeal allowed an appeal from Ward J’s judgment and ordered judgment in the amount of $632,038.95 in favour of Mr and Mrs McLaughlin, inclusive of interest of $118,909.50 and costs against the Company.

14. [17]

    On 18 December 2012, the Company’s directors placed it into voluntary administration, after the units in the property had been transferred to its shareholders, depriving it of assets that would have otherwise been available to meet the judgment against it. That course had previously been foreshadowed by a letter dated 16 January 2008 from the Company’s chairman, Mr Rodney Garratt QC, to Mr and Mrs McLaughlin, which suggested that:

15. [18]

    As I noted in the May 2015 judgment, the Company subsequently took a similar course to that foreshadowed by that letter, with the modifications that voluntary administrators were appointed after Mr and Mrs McLaughlin had succeeded in their claims against the Company, a deed of company arrangement was proposed, and the Company transitioned to voluntary liquidation when that deed of company arrangement was not approved by the Company’s creditors. In the event, that course was not wholly successful in achieving a result that other shareholders obtained unencumbered title in the units that had been transferred to them, the administrator’s or liquidator’s costs were paid from the value of the unit that would otherwise have been transferred to Mr and Mrs McLaughlin and Mr and Mrs McLaughlin were left to prove for their judgment against an assetless company.

16. [19]

    After the then voluntary administrators were appointed, they issued levies to shareholders in the amount of $1,274,499.61 in February 2013, quantified as an amount of $1 million to be paid to Mr and Mrs McLaughlin in respect of their judgment and estimated costs and $274,500 to meet payment of the administrators’ remuneration, costs, fees and expenses (May 2015 judgment [19]). The second special levy issued by the administrators in April 2013 for $254,201 was based on cl 8 of the share surrender agreements and claimed additional amounts as a result of the level of costs claimed by Mr and Mrs McLaughlin’s former solicitors, as to which the administrators undertook an estimate of recoverable costs (May 2015 judgment [21]. After the Company transitioned from voluntary administration to liquidation, the then liquidator subsequently issued a further levy to shareholders in the amount of $1,624,697.20 in February 2015, which provided for a higher level of costs recoverable by Mr and Mrs McLaughlin’ solicitors. The shareholders which appeared in earlier proceedings before me did not challenge that approach (May 2015 judgment [25]).

17. [20]

    After delivery of the May 2015 judgment, the then liquidator, Mr Farnsworth, elected between components of the levies that had been previously been issued and, by memorandum dated 12 May 2015 to the Company’s shareholders, provided a reconciliation conforming to the May 2015 judgment setting out the sums due from shareholders, and issued demands to shareholders in the amount of $2,045,594.07 (Ex P2, 485). The then liquidator subsequently brought proceedings against several shareholders who did not pay the levy issued against them, which was ultimately recovered against the majority of shareholders, although a claim against two shareholders was compromised.

18. [21]

    In September 2015, the then liquidator declared and paid a dividend in the amount of $1,093,886.92 to creditors at a rate of 75¢ in the dollar. Also in September 2015, the Company transferred a unit in the property to Mr and Mrs McLaughlin, which was then sold, in part to discharge debts that Mr and Mrs McLaughlin had incurred to their former solicitors in respect of the conduct of the proceedings.

19. [22]

    In this application, the liquidators read paragraphs 1–3 and 19–27 of the affidavit dated 3 July 2013 of the former liquidator, Mr Farnsworth, and also read paragraphs 1 and 5 of Mr Farnsworth’s affidavit dated 1 July 2014. Mr Farnsworth’s affidavit dated 21 November 2014 was not read, although a letter dated 20 November 2014 to shareholders in respect of the calculation of the earlier levies was tendered (Ex P1). The liquidators also read paragraphs 1 and 24–25 of Mr Farnsworth’s affidavit dated 10 March 2015.

20. [23]

    The liquidators also relied on Mr Cathro’s affidavit dated 2 June 2017 filed in support of this application, which set out the sequence of events to which I have referred above, including the entry into share surrender agreements between the Company and its shareholders and the transfer of units in the property, other than Mr and Mrs McLaughlin’s unit, to shareholders and addressed the issues raised by this application. Mr Cathro also sets out the steps taken by Mr Farnsworth, ultimately with substantial success, to recover the earlier levies from shareholders. Mr Cathro noted that the outcome was that the large majority of shareholders had paid their liabilities to earlier levies in full; two parties, comprising three individuals, had paid their liabilities in part and had been released from a liability to pay the balance in respect of those levies (and I will address that issue below); and one entity owed a minor balance that does not warrant further consideration. Mr Cathro also refers to the manner in which Mr Farnsworth applied the monies recovered by the levies, including to remuneration and costs and disbursements. It appears that the amount recovered from levies was not sufficient to discharge the debts of creditors, partly because the amount of remuneration, legal costs and disbursements incurred, including in proceedings to recover the amounts levied, exceeded the amount that had been assumed by Mr Farnsworth in setting the levies.

21. [24]

    Mr Cathro also sets out a calculation of the amount that would now need to be levied to bring about payment of creditors in full, including post-appointment interest and costs of the winding up. That calculation indicates that the amount outstanding to Mr and Mrs McLaughlin is still substantial, by any standard, comprising unpaid principal of $324,108 and post-appointment interest to 17 May 2017 of $337,296, for a total of $661,404.

22. [25]

    The liquidators also relied on Mr Cathro’s further affidavit dated 1 September 2017, which identified matters that may cause difficulty for recovery of amounts against several shareholders, including the fact that some shareholders have died and others are or claim to be impecunious and at least one shareholder is now resident outside the jurisdiction. Mr Cathro also notes that a number of shareholders have indicated their intention to challenge the validity of further levies, including on the basis that they claim that the earlier levy constitutes a full and final settlement of the matter.

23. [26]

    The liquidators also rely on the affidavit dated 23 November 2017 of their solicitor, Mr Breene, which indicates that this application was served on the Company’s shareholders and refers to communications with Mr Garratt who claims to act as a “conduit” for dealings with many shareholders on a collective basis. The liquidators also rely on a second affidavit dated 23 November 2017 of Mr Breene, which refers to Mr Garratt’s indication of the contentions which shareholders may advance to resist a levy, including that:

24. [27]

    So far as it is necessary to assess the strength of these contentions in determining whether to make the directions sought by the liquidator, it seems to me that little weight should be given to the first of these contentions, where I will find below that the course that the Company proposed to take under the share surrender agreements was contrary to s 114 of the Corporations Act and that any invalidity arising from that matter would not have been validated under s 1322 of the Corporations Act. No evidence has emerged in this application to suggest that the second contention is available, other than potentially in respect of three persons, and I refer to the terms of the settlements with those shareholders below.

25. [28]

    The third contention raised by Mr Garratt may also face difficulties by reason of s 556 of the Corporations Act and equitable principles in respect of a liquidator’s lien for the costs of recovering amounts in a liquidation. The shareholders that appeared in earlier proceedings, two companies associated with Mr Garratt, Loafer Pty Ltd (“Loafer”) and Garmen Pty Ltd (“Garmen”) and Mr and Mrs Brown, will face the further difficulty with that contention that the question of the inclusion of remuneration in the amount of a levy was determined by the July 2015 judgment, in proceedings in which they were party. Even if that determination is properly characterised as interlocutory in nature, it involved an extended consideration of the relevant issues, and it is by no means apparent that the Court would permit those shareholders to reagitate the same issue or would reach a different result in further proceedings raising the same issue. It is, however, not necessary for me to express any concluded view as to those matters and I do not do so.

26. [29]

    Mr Breene also refers to the steps that the former liquidator took to bring about payment of the earlier levies, including the issue of creditor’s statutory demands and the commencement of legal proceedings against shareholders, and to the fact that monies presently available to the liquidators are not likely to be sufficient to fund such enforcement proceedings in respect of a further levy. I will address that question below.

27. [30]

    The liquidators also tendered an affidavit dated 1 September 2017 of a shareholder (or, she contends, a former shareholder) in the Company, Ms Linehan, which foreshadows the defences which Ms Linehan and Ms Rosenthal would advance in respect of any claim against them. Ms Linehan indicates that she and Ms Rosenthal would contend that a claim against them would be barred by a settlement deed executed by the Company and the liquidators in respect of the earlier proceedings against them, and she refers to cl 3.3 of that deed by which the Company released them from the “Claims” (as defined). I think it likely that contention would fail, since the definition of “Claims” that were released was limited to claims that existed at the date of that deed, and a claim in respect of a further levy made after that date would not fall within that definition. The same result should follow in respect of a deed with another shareholder, Mr Dunn.

28. [31]

    Ms Linehan also foreshadows a contention that her and Ms Rosenthal’s shares were surrendered in accordance with the share surrender agreements. I give little weight to that contention. I have referred to Pembroke J’s judgment above. In the May 2015 judgment, I recognised (at [45]) that his Honour’s conclusion did not bind the shareholders who were not party to the proceedings before him, although it bound the Company which was party to the proceedings, but also observed that it seemed to me that his Honour’s conclusion was correct. In the May 2015 judgment, I also held that there was a continuing shareholder relationship between the Company and the parties recorded as shareholders in the Company’s records as maintained by ASIC and that no evidence led in those proceedings displaced the prima facie position as to that shareholding as recorded in ASIC’s records. I also reached findings as to the operation of cl 6 of the share surrender agreements and as to relevant provisions of the Company’s articles of association. There may be little prospect that, where this matter has now been considered by two separate judges in the Equity Division, both of whom have reached the same result, and no appeal was brought from those decisions, a different view would be reached in further proceedings considering the same issue. As I will note below, the suggested cancellation of all shares in the Company would also have been inconsistent with s 114 of the Corporations Act had it occurred. Ms Linehan also indicates that she would not attend a meeting to implement a surrender or cancellation of the shares, because she considers she is already not a shareholder. That view, if widely held among the Company’s shareholders, would be a significant obstacle to the implementation of a cancellation of shares involving a general meeting of the Company.

29. [32]

    Mr and Mrs McLaughlin relied on Mr McLaughlin’s affidavit dated 27 July 2017 and also relied on a substantial bundle of documents and correspondence (Ex M1). Mr McLaughlin’s affidavit was of limited relevance to the matters raised in this application and expressed Mr McLaughlin’s outrage as to the steps taken by Mr Garratt in respect of these matters. Those matters were also addressed, at some length, by Mr McLaughlin, and to some extent by Mrs McLaughlin, in submissions.

Whether the liquidators should cause the Company to cancel its shares on issue

1. [33]

   The first direction sought by the liquidators is whether they should take steps to cause the Company to cancel its shares on issue under the share surrender agreements and, if so, to convene a general meeting of the Company’s shareholders for the purposes of voting on a resolution to cancel those shares under article 42(d) of its articles of association. Mr Cathro recognises in his affidavit dated 2 June 2017 that, on the one hand, it may be arguable that the Company is required to take that course under the share surrender agreements. However, he also rightly recognises that that course would be inconsistent with the position taken by the Company in the proceedings before Pembroke J in March 2011 in McLaughlin v Dungowan Manly Pty Ltd above, where the Company had relied on the fact that its shareholders remained on the register to defeat a claim by Mr and Mrs McLaughlin.

2. [34]

   Mr and Mrs McLaughlin oppose this direction and submit that shareholders should not be offered a vote to bring about a cancellation of their shares in the Company, while the Company still owes substantial monies to creditors, and that shareholders would face a serious conflict of interest in respect of such a vote, which would not be in the best interests of the Company and its creditors. It is not necessary to address those submissions, where I have held that this direction should not be given for other reasons. Mr and Mrs McLaughlin also submit that the effect of a direction in this form would be to allow the Company and its shareholders to avoid payment of the balance of the judgment due to them. There is force in that submission, although I have determined this matter on other grounds.

3. [35]

   I am satisfied that I should not make this direction. First, and most importantly, it seems to me that the structure adopted by the share surrender agreements was flawed, from its inception, so far as it contemplated the cancellation of all of the shares in the Company with the result that a company limited by shares would remain in existence without any shares on issue. Mr Assaf, who appeared for the liquidators, drew attention to s 114 of the Corporations Act, which had not, so far as I am aware, been raised in previous proceedings. That section provides that:

4. [36]

   It also seems to me that a share surrender that would bring about a breach of s 114 of the Corporations Act is not reasonably required for the purpose of cl 1 of the share surrender agreements, and the liquidators ought not to take further steps to implement that share surrender. I am reinforced in that view by the fact that the convening of any shareholder meeting to implement the cancellation of the Company’s shares would incur further costs and I can see no reason why the Company’s creditors should be required to bear those costs, at least indirectly, to advance the interests of the Company’s shareholders to the detriment of its creditors.

5. [37]

   For completeness, it seems to me that the liquidators could not properly take steps to implement a share surrender by which all but one share in the Company remained on issue, although that transaction would not have been contrary to s 114 of the Corporations Act. That transaction could not properly be implemented because that was not what was contemplated by the share surrender agreements, which provided for the surrender of all shares in the Company and not all but one of them. Second, that transaction could not properly be implemented because the remaining shareholder would then be exposed to the entirety of any further levy that might now be issued.

6. [38]

   Where no question arises of the liquidators taking steps now to cause the Company to cancel its shares on issue, it is not necessary to address the question of how such a cancellation could be achieved, under article 42(d) of the Company’s articles of association or otherwise. I am satisfied that, consistent with the alternative approach raised by Mr Assaf in the course of submissions, a direction should be given in the negative, namely that the liquidators are justified in not taking steps to cause the Company to cancel its shares on issue.

Whether the liquidators or voluntary administrators appointed to the Company should issue a further levy to its shareholders

1. [39]

   Alternatively, in paragraph 2 of the Interlocutory Process, the liquidators seek a direction whether they would be justified in issuing a further levy to the Company’s shareholders under article 4 of its articles of association in the sum of $923,596.90 or such other amount as the Court orders. In a further alternative to that course, in paragraph 3 of the Interlocutory Process, the liquidators seek an order under s 436B(2)(g) of the Corporations Act granting them leave to appoint themselves as joint and several administrators of the Company and a direction that they, in their capacities as administrators of the Company, are justified in issuing a further levy. These directions are true alternatives.

2. [40]

   In his affidavit dated 2 June 2017, Mr Cathro noted that the liquidators may have conflicting obligations in respect of the issue of a further levy to shareholders, since the issue and recovery of such a levy may allow creditors to receive between 95 and 100¢ in the dollar, and appeared to be in the best interests of creditors subject to commercial considerations, but it was arguable that the Company was bound to cancel the shares under the share surrender agreements and it would not be able to issue any further levy under its articles of association if it did so. I have held above that the company is not required to take that course, where it would be contrary to s 114 of the Corporations Act so far as it would leave the Company in existence with no members. Mr Cathro also identified the considerations relevant to the making of a further levy including the possibility that shareholders may not have sufficient assets or resources to pay their proportion of the further levy and that the Company may not have (or, more likely, I interpolate, presently does not have) sufficient funds to take steps to recover the further levy if the Company’s shareholders resist payment. I will return to those matters below. Mr Cathro also led evidence of the creditors admitted to proof in the liquidation and it is apparent that Mr and Mrs McLaughlin are, by a substantial margin, the largest creditor in the liquidation.

3. [41]

   Mr and Mrs McLaughlin submit that the directions in paragraphs 2–5 of the Interlocutory Process should be made, with some modifications. As I have noted above, paragraphs 2 and 3 of those directions are alternatives and should not both be made. Mr and Mrs McLaughlin also express scepticism as to Mr Garratt’s suggestion that shareholders in the Company cannot afford to pay a further levy, and submit that Mr Garratt has previously advanced that position, including prior to the point at which shareholders largely paid the previous levies. There is some force in that submission. As I have noted in earlier judgments, it is ultimately possible to issue successive levies, if the amount unpaid by shareholders in respect of a further levy leaves a significant shortfall. That will ultimately not be in the interests of shareholders, so far as each further levy will increase the liquidators’ costs and expenses, which are also recoverable from such a further levy against shareholders.

4. [42]

   It seems to me that a further levy to the Company’s shareholders would be within the directors’ powers, so far as they were properly exercised by a voluntary administrator under s 437A(1)(d) of the Corporations Act, for the reasons indicated in the May 2015 judgment. I there rejected a contention that article 4 of the Company’s articles of association was limited to “operational expenditure” of various kinds. I observed at [39] that:

5. [43]

   In the May 2015 judgment, I also rejected (at [44]) an argument put by Loafer and Garmen that the terms of the share surrender agreements excluded reliance on the Company’s articles of association to support a levy upon shareholders. I noted that cl 6 of the share surrender agreement did not limit liabilities of the shareholders, since it was directed to the position of a “former” shareholder and not a current relationship between a shareholder and the Company. The relevant shares have not, prior to this point, been surrendered and cancelled and should not now be cancelled, where that would bring about the breach of s 114 of the Corporations Act to which I referred above. In the May 2015 judgment, I also referred to a range of evidence which supported the position that the shareholders had continued to hold their shares until and beyond 2011, and to the absence of evidence displacing that position. I held (at [63]) that:

6. [44]

   I am satisfied that a direction should not be made in the form of paragraph 2 of the Interlocutory Process. Mr Assaf points out that cl 4 of the Company’s articles of association confers the power to impose levies upon the directors; that there is no corresponding provision to s 437A(1)(d) of the Corporations Act in respect of liquidators; and that there is authority that a power conferred upon directors cannot be exercised by a liquidator: Butterell v Docker Smith Pty Ltd (1997) 41 NSWLR 129; 23 ACSR 148. As Mr Assaf pointed out, and as I had observed in the May 2015 judgment (at [35]), that point had not been taken by Loafer, Garmen or Mr and Mrs Brown, the shareholders that participated in those proceedings. However, that point could now be taken by shareholders that were not party to the proceedings before me, and would not face any Anshun estoppel that might prevent them from taking that point in respect of a further levy. It seems to me that the liquidators should not issue a further levy in a manner that would be open to challenge on the basis that the directors’ power to issue a further levy under the Company’s articles of association could not be exercised by a liquidator, in the absence of a provision corresponding to s 437A(1)(d) of the Corporations Act.

7. [45]

   I am satisfied that an order could likely be made under s 436B(2)(g) of the Corporations Act granting leave to the liquidators to appoint themselves as joint and several administrators of the Company in the relevant circumstances, in order to implement a further levy. I am also satisfied that a direction could be made that the liquidators, following their appointment as voluntary administrators of the Company, would be justified in issuing the further levy subject to the issue of funding of enforcement proceedings noted below. It is sufficient to reach that result that it seems to me, at least, strongly arguable that the issue of the further levy by voluntary administrators of the Company would be valid for the reasons that the earlier levies were held to be valid in the May 2015 judgment, and given the difficulties with the arguments foreshadowed by Mr Garratt and Ms Linehan to which I referred above.

8. [46]

   I will defer making that direction until a significant commercial consideration in respect of the issue of a further levy has been addressed by the liquidators, which would be relevant to whether such a direction is made. In his earlier judgment as to the liquidators’ remuneration, Brereton J expressed the view that there would be no harm in the issue of a further levy, even if the liquidators may not have the financial capacity to take enforcement proceedings if it was not met. While that view is plainly open, I would be inclined to take the view that the liquidators should preferably satisfy themselves as to their capacity to fund enforcement proceedings to their completion before issuing a further levy. At the very least, the fact that the liquidators are adequately funded to enforce that levy, if it is not met, ought to significantly increase the prospects that it will in fact be met; conversely, any perception by the Company’s shareholders that the liquidators do not have the financial capacity to enforce a further levy would make it less likely that shareholders would pay it, in order to avoid their incurring the costs of unsuccessfully defending enforcement proceedings in respect of that levy.

9. [47]

   It may be that the costs that would be incurred in the conduct of proceedings against the shareholders if they do not meet a further levy could be reduced by the liquidators bringing one proceeding against all the shareholders, to the extent that there will be substantial common issues in any such proceeding of the kind foreshadowed by Mr Garratt, and seeking an order under r 6.19(2) of the Uniform Civil Procedure Rules 2005 (NSW) of a kind that is commonly made in preference claims brought by a liquidator. Although Mr Assaf expressed reservations as to whether such a claim could properly be brought in this Court, given the total amount involved, it does not seem to me that the liquidators should have any particular hesitation in that regard. It seems to me that the proceedings could properly be brought in this court where these issues ultimately arise from a judgment of the Court of Appeal against the Company, which remains unsatisfied in part, the issues involved are relatively complex and they involve questions of the administration of a corporation which are within this Court’s jurisdiction.

10. [48]

    It seems to me preferable to defer making a direction as to this matter until the liquidators have the opportunity to explore whether they are able to obtain funding in respect of any litigation required to enforce a further levy. It may be unlikely that litigation funding, even if available, would be practicable, where the need to allow for a funder’s return would substantially increase the amount of a further levy. In these circumstances, it may be necessary that Mr and Mrs McLaughlin indemnify the liquidators against the costs of enforcement proceedings (as they foreshadowed they may be prepared to do in the course of the application before me) and security or undertakings preventing the disposal of property may be required in order to support such an indemnity. It may be necessary for Mr and Mrs McLaughlin to go further by funding the liquidators, in advance, for the costs that would be incurred in enforcement proceedings, since the liquidators would not be obliged to bring such proceedings unless they have funds in hand to pay the costs of doing so. I noted, in the course of oral submissions, and I repeat, that Mr and Mrs McLaughlin would need to give very careful consideration to the risks involved in that course.

11. [49]

    In the course of oral submissions, reference was also made to the possibility of a further direction, if the Court was not satisfied that any of the directions that the liquidators sought was appropriate, that the liquidators would be justified in not taking the steps that were the subject of their other directions. In principle, such a direction might well have been appropriate in order to bring finality to the liquidation, if the Court was satisfied of that matter. I am not satisfied that such a direction should be made at this point, although it may ultimately be justified if Mr and Mrs McLaughlin, quite possibly sensibly and in their own interests, are not willing to fund the costs of any enforcement proceedings in respect of a further levy.

The proportions in which any further levy should be made

1. [50]

   The liquidators seek a further direction that they are justified in issuing any further levy to specified shareholders of the Company in specified proportions. This direction reflects an issue raised in Mr Cathro’s affidavit, which refers to a minor inconsistency between the percentage shareholdings used by Mr Farnsworth to calculate the levies he had issued and the percentage shareholdings shown in ASIC’s records, in respect of Loafer and Garmen. That inconsistency appears to have arisen because Mr Farnsworth proceeded on a basis which was consistent with the earlier share surrender agreements and a statutory declaration of Mr Garratt dated 24 June 2011, that two other shareholders in the Company held their shares as undisclosed agents of Loafer. Mr Cathro notes that Loafer and Garmen paid their respective liabilities under the levies issued by Mr Farnsworth in the proportions in which those levies were issued. I should also note that they also raised no issue as to the accuracy of those proportions in the earlier proceedings before me, in which they participated, and it seems to me likely that they would now not be permitted to raise such an issue under principles of Anshun estoppel.

2. [51]

   In these circumstances, I am satisfied that a direction should be made that Mr Cathro would be justified in making any further levy on the basis provided in the earlier share surrender agreements, consistent with the basis on which Mr Farnsworth had proceeded, which had not been contested by Loafer and Garmen in the earlier proceedings before me, and on which they appear to have acted in paying the previous levies.

Application of funds recovered on a further levy

1. [52]

   The liquidators seek a fifth direction that they are justified in applying any funds recovered under a further levy in accordance with s 556 of the Corporations Act or in such other manner as the Court directs. I do not consider that a direction should be given, at this stage, that the liquidators are justified in applying any funds recovered under a further levy in accordance with s 556 of the Corporations Act, although the observations I have made above as to the scope of that section and the likely application of a liquidator’s lien over amounts recovered suggest that such a direction may ultimately be appropriate. It seems to me that that direction is premature, at this point, and any issue in respect of it is best determined when the amount of funds recovered by such a levy is known.

Other matters raised by Mr and Mrs McLaughlin

1. [53]

   Mr and Mrs McLaughlin also submit that the directions in paragraphs 2–5 should be modified, inter alia, so that Mr and Mrs McLaughlin are not liable for any portion of the levy. It does not seem to me that the liquidators could reasonably proceed on that basis, although I would expect that any levy payable by Mr and Mrs McLaughlin should be set off against the debt due to them, as occurred in respect of the previous levy. Mr and Mrs McLaughlin also seek a direction to the liquidators as to the time in which a levy is to be payable, and as to the position in respect of the issue of a shortfall levy and further shortfall levies after non-receipt of funds. I do not consider that such directions could, or should, be made where the approach adopted by the liquidators will involve matters of commercial judgment. In any event, there may be good reason for the liquidator, if a further levy is issued, to then bring a single proceeding against all shareholders who have not paid, so as to seek to bring the matter to conclusion with expedition. Mr and Mrs McLaughlin also seek directions that the liquidators report matters to ASIC. The history of the Company, as recorded in the various judgments of the Court, may give rise to matters that may warrant further regulatory consideration, although the passage of time may be a substantial impediment to such action. However, it will be a matter for the liquidators as to whether to make any such report to ASIC and I should not make any direction in that respect.

Liquidators’ remuneration

1. [54]

   The liquidators initially sought an order that their further remuneration as liquidators of the Company for the period from 14 March 2016 to 17 May 2017 be allowed in the sum of $111,426. They did not press to have that matter determined at the hearing and seek to have the application adjourned to deal with it. I am content to adjourn the application, although it seems to me preferable that it be adjourned until after the liquidators have resolved the questions addressed by this judgment and determined whether or not to issue a further levy. If the liquidators press to have the application determined prior to that date, then I will list it for hearing, but they should be on notice that it may well be dismissed on the basis that they will not be able to show sufficient progress in the liquidation over that period to warrant an order for remuneration in that amount or possibly any order for remuneration.

2. [55]

   Mr and Mrs McLaughlin also advance several submissions critical of the liquidators’ performance of their obligations. There has been a substantial, and largely unexplained, delay in bringing this application, including after the liquidators obtained detailed advice from Counsel as to the steps that were available to them. I expect that the liquidators will, with the benefit of this judgment and consequent directions, proceed with expedition. It seems to me that, at the least, their ability to recover additional remuneration beyond that ordered by Brereton J may be at risk if they did not do so.

Next steps

1. [56]

   This application should now be adjourned for a short time, to allow the liquidators to consider, and discuss with Mr and Mrs McLaughlin, the issues that arise from this judgment, including the question of funding of any proceedings against shareholders that may be necessary to enforce a further levy and determine the final form of the relief that is sought in the light of that further consideration and discussion. I will hear the parties as to the length of such an adjournment.