In the matter of Mikcon Group Australia Pty Ltd (in liq)

1. [1]

   By Originating Process filed on 19 July 2023, Messrs Sprowles and Hogan in their capacity as liquidators of Mikcon Group Australia Pty Ltd (in liq) (“Company”) and the Company seek a range of orders against the Defendants, including Mr Michael Conneely, two companies associated with him, Mikcon Pty Ltd (“Mikcon”) and Mikcon Plant Hire Pty Ltd (“MPH”) (together, “Mikcon Group Companies”), Ms Marie Conneely and several third parties. Messrs Sprowles and Hogan were appointed as joint and several voluntary administrators of the Company on 9 February 2021, were subsequently appointed as deed administrators under a Deed of Company Arrangement dated 21 May 2021 (“DOCA”); and, on termination of the DOCA, were appointed as joint and several liquidators of the Company from 21 November 2022.

2. [2]

   Broadly, the Plaintiffs seek judgment in the amount of $1,061,538.52 against Mr Conneely, an amount by way of interest as against Mr Conneely and the Mikcon Group Companies, a declaration that Mr Conneely’s interest in a specified property (“Castle Hill Property”) is charged to secure the payment of those amounts, and orders appointing Mr Sprowles as trustee for the sale of the Castle Hill Property and addressing the process in respect of a sale. Paragraph 10 of the Originating Process also seeks a direction as to the manner in which the sale proceeds of the Castle Hill Property should be distributed, but the Plaintiffs did not seek to have that matter determined at the hearing, where several of the third party Defendants seek to make submissions as to that issue, whether before or after any sale of the Castle Hill Property.

3. [3]

   The First Defendant, Mr Conneely, was the sole director of the Company, Mikcon and MPH and was the sole shareholder in the Company, a shareholder in Mikcon and the sole shareholder in MPH. The Fourth Defendant, Ms Conneely, is a joint tenant of the Castle Hill Property with Mr Conneely. The Fifth Defendant, the Commonwealth Bank of Australia, has a first ranking mortgage on title of the Castle Hill Property and the Seventh Defendant (Porter Finance Australia Pty Ltd) (“Porter”) has registered a caveat on title of the Castle Hill Property.

4. [4]

   None of the Defendants appeared at the hearing. I am satisfied that the Defendants have been served and the Court should proceed to a hearing. Rule 29.7 of the Uniform Civil Procedure Rules 2005 (NSW) applies where a trial is called on and a party is absent, and provides that the Court may proceed with the trial generally or so far as it concerns any claim for relief in the proceedings, or may adjourn the trial. It is, of course, fundamental that a party who may be adversely affected by the making of court orders has a right to be heard: Cameron v Cole (1944) 68 CLR 571 at 589; [1944] HCA 5. However, that right is a right to an opportunity to be heard, and not a right to frustrate the hearing of proceedings by not attending them, although the Court should have regard to the extent of any hardship to the party against whom an order is sought from proceeding in its absence and to any considerations of urgency: Smirski v Macander [2010] NSWSC 929 at [34]; NSW Trustee & Guardian v Gregory [2012] NSWSC 681 at [22]; Matta v Matta [2015] NSWSC 963 (“Matta v Matta”) at [7]. These proceedings have been on foot for a considerable time; there is a real cost to the Company’s creditors of their continuance and to claimants on Mr Conneely’s interest in the Castle Hill Property in a continuing delay of the sale of the property; and the Defendants have been given notice of the hearing and an opportunity to appear. In these circumstances, I am satisfied that it is proper to proceed to a hearing, notwithstanding that, relevantly, Mr Conneely, the Mikcon Group Companies and Mrs Conneely have not appeared. I also recognise that several third party Defendants have identified claims against the proceeds of a sale of the Castle Hill Property which will not be determined by this application and they will have the opportunity to be heard in respect of them.

Affidavit evidence and background facts

1. [5]

   The Plaintiffs read the affidavit dated 19 July 2023 of Mr Sprowles, which refers to his and Mr Hogan’s initial appointment as joint and several voluntary administrators of the Company and subsequently as deed administrator under the DOCA. Mr Sprowles also there refers to the circumstances in which the DOCA was terminated and the Plaintiffs claimed amounts as against Mr Conneely and the Mikcon Group Companies pursuant to the DOCA and a Deed of Guarantee & Indemnity also dated 21 May 2021 (“Guarantee & Indemnity”). By his second affidavit dated 30 October 2023, Mr Sprowles refers to dealings in respect of the Castle Hill Property, including the lodgement of a caveat on title of that property; to the DOCA and Guarantee & Indemnity, and to the position in respect of Porter’s claim. It is not necessary to determine any question as to any claim by Porter in order to determine the relief presently sought in this aspect of the proceedings, where the parties’ entitlements on a distribution of any proceeds of sale of the Castle Hill Properly has properly been deferred. By a third affidavit dated 14 November 2024, Mr Sprowles elaborated on the execution of the DOCA, Guarantee & Indemnity and a Deed of Deferral which was executed at the same time. By his affidavit dated 14 November 2024, Mr Hogan also addressed the execution of those documents.

2. [6]

   The Plaintiffs also read affidavits of service dated 26 November 2024 of Mr Vitanza and Mr Karle which dealt, inter alia, with substituted service of documents in respect of the proceedings on Ms Conneely, in accordance with orders for substituted service previously made by the Court.

3. [7]

   Turning now to the background facts, there is limited dispute as to those facts, at least so far as the dealings between the Plaintiffs, Mr Conneely and the Mikcon Group Companies are concerned. I have here drawn on the Plaintiffs’ Statement of Claim (“SOC”) and the Defence filed by Mr Conneely and the Mikcon Group Companies’, the Plaintiffs’ chronology and the chronological bundle of documents that was tendered by the Plaintiffs at the hearing.

4. [8]

   As I noted above, on 9 February 2021, Messrs Sprowles and Hogan were appointed as the joint and several voluntary administrators of the Company under s 436A of the Act (SOC [9], admitted Defence [9]). At an adjourned second meeting of the Company’s creditors held on 30 April 2021, the Company’s resolved that the Company execute the DOCA (SOC [10], admitted Defence [10]; Ex P1, 47).

5. [9]

   The Company, Messrs Sprowles and Hogan, Mr Conneely and the Mikcon Group Companies executed the DOCA on 21 May 2021 (SOC [11]-[12], largely admitted Defence [11]-[12]; Ex P1, 65ff) which relevantly provided that Messrs Sprowles and Hogan were appointed as joint and several deed administrators of the DOCA (cl 2.2); it was a condition precedent to the DOCA that a Deed of Deferral (as defined) and the Guarantee & Indemnity were executed to the satisfaction of Messrs Sprowles and Hogan as deed administrators of the DOCA (cl 2.6); and the Deed Fund (as defined in the DOCA) included a Director Contribution (as defined), being $120,000 to be paid by Mr Conneely within 7 days of the execution date of the DOCA and the Mikcon Group Contributions (as defined), being $2,070,000 payable by the Mikcon Group Companies to the deed administrators by instalments over an extended period (cll 4.1-4.2). Clause 4.2 of the DOCA, although headed “time for payment”, is expressed in terms that imposed an obligation (necessarily on Mr Conneely) to pay the Director Contribution by the specified time and (necessarily on the Mikcon Group Companies) to pay the Mikcon Group Contributions by the specified instalments. The DOCA in turn provided that, if the “Deed Proponents” (being Mr Conneely and the Mikcon Group Companies, jointly and severally) failed to meet three consecutive Mikcon Group Contributions, then the deed administrators may convene a meeting of the Company’s creditors where the creditors may resolve to vary the DOCA, terminate the DOCA, terminate the DOCA and wind up the Company appointing the deed administrators as liquidators of the Company, enforce the terms of the DOCA, or approve any other proposal permitted under the Act (cl 7.1).

6. [10]

   The DOCA also provided that, on the Execution Date (as defined), the control and stewardship of the Company reverted to Mr Conneely (cl 8.1). By cl 8.3 of the DOCA, Mr Conneely covenanted and agreed to, relevantly, provide the deed administrators with the Company’s monthly management accounts on the first day of each calendar month; ensure all tax lodgements (including without limitation business activity statements and/or superannuation guarantee charge lodgements in relation to the Company) were made on time and provide copies of the documents comprising those tax lodgements to the liquidators (as deed administrators of the DOCA) within 48 hours of the lodgement of those documents; and provide a three-way financial forecast for the Company for the next financial year within 45 days of the conclusion of the previous financial year. By cl 8.4 of the DOCA, if the Company failed to lodge two tax lodgements (including without limitation business activity statements and/or superannuation guarantee charge lodgements in relation to the Company) on time; and/or pay any amounts referred to in two tax lodgements (including without limitation business activity statements and/or superannuation guarantee charge lodgements in relation to the Company) on time, then the deed administrators were required to convene a meeting of the Company’s creditors, at which creditors may resolve to vary the DOCA, terminate the DOCA, terminate the DOCA and wind up the Company appointing the deed administrators as liquidators of the Company, enforce the terms of the DOCA or approve any other proposal permitted under the Act. By cl 10.1 of the DOCA, the deed administrators were entitled to be indemnified by the Company, and from its assets, and out of the Deed Fund for, inter alia, all actions, suits, proceedings, accounts, claims and demands arising during the period of the administration.

7. [11]

   On 21 May 2021, the Company, Messrs Hogan and Sprowles, Mr Conneely and the Mikcon Group Companies also executed the Guarantee & Indemnity (SOC [13]-[14], admitted Defence [13]-[14]; Ex P1, 90) which relevantly provided (cl 2.1) that Mr Conneely and the Mikcon Group Companies (jointly and severally) guaranteed in favour of Messrs Hogan and Sprowles (as ‘Beneficiary’ under the Guarantee & Indemnity) the due and punctual performance of all obligations of the Mikcon Group Companies to the liquidators, including the payment of money; all moneys due and payable from time to time or to become due and payable from time to time, to Messrs Hogan and Sprowles by the Mikcon Group Companies with regard to or in connection with the DOCA; and all other moneys which the Mikcon Group Companies either alone, jointly, severally, or jointly and severally with any other person, now or from time to time is, or becomes actually or contingently liable to pay to Messrs Hogan and Sprowles with regard to or in connection with the DOCA; and the due and punctual observance and performance by the Mikcon Group Companies of all its other liabilities, obligations and agreements (whether monetary or non-monetary, present or future, actual or contingent) to Messrs Hogan and Sprowles pursuant to or in connection with the DOCA. Clause 2.2 of the Guarantee & Indemnity in turn provided that, if the Mikcon Group Companies defaulted on the due and punctual payment of any money referred to in cl 2.1(a) of the Guarantee & Indemnity, Mr Conneely and the Mikcon Group Companies must pay that money to or as directed by Messrs Hogan and Sprowles immediately on demand. Clause 2.6 of the Guarantee & Indemnity provided that, if the DOCA was terminated (other than by the effectuation of its terms), Mr Conneely acknowledged and agreed to immediately pay to Messrs Hogan and Sprowles any and all amounts which the Mikcon Group Companies were otherwise obliged to pay under the DOCA as if the DOCA had survived and not been terminated, to form part of the assets recovered in any subsequent winding up of the Company, and that clause was expressed to survive termination of the DOCA and the Guarantee & Indemnity.

8. [12]

   By cl 3.1 of the Guarantee & Indemnity, as security for Mr Conneely’s and the Mikcon Group Companies’ obligations under the DOCA and the Guarantee & Indemnity (including the payment of the ‘Secured Monies’ as defined in the Guarantee & Indemnity), Mr Connelly irrevocably charged and mortgaged in favour of Messrs Hogan and Sprowles all of his right, title and interest in the Castle Hill Property. By cl 8.1 of the Guarantee & Indemnity, Mr Conneely and the Mikcon Group Companies as Guarantors must pay interest on each amount due and payable but not paid under the Guarantee & Indemnity on the day on which it falls due at a rate of 1.5% per calendar month calculated from the due date and accruing monthly therefrom until the date of payment.

9. [13]

   There is no dispute (SOC [15]-[16], Defence [15]-[16]) that, between 4 June 2021 and 11 November 2022, the Mikcon Group Companies paid an amount constituting Mikcon Group Contributions (as defined) totalling $1,008,461.48 and, on or about 28 May 2021, Mr Conneely paid the Director Contribution (as defined) in the sum of $120,000. It is also common ground that the Company subsequently failed (SOC [17]-[19]; Defence [17]-[19]) to pay on time the amounts referred to in two Business Activity Statements for the quarters ending September 2021 and December 2021 and breached the DOCA in other respects. However, Mr Conneely and the Mikcon Group Companies deny that the Mikcon Group Companies were obliged to pay any amount into the Deed Fund or to Messrs Hogan and Sprowles under the DOCA (Defence [12], [19]).

10. [14]

    By letter dated 25 May 2022, Messrs Hogan and Sprowles issued a notice (“Notice”) requiring that existing breaches of the terms of the DOCA be rectified by 30 May 2022; those breaches were not remedied; on 1 November 2022, Messrs Hogan and Sprowles convened a meeting of the Company’s creditors to be held on 21 November 2022, pursuant to cll 7.1 and/or 8.4 of the DOCA; and, at that meeting, a resolution was passed on the casting vote of Messrs Hogan and Sprowles to terminate the DOCA and they were appointed as liquidators of the Company (SOC [20]-[29]; partly admitted Defence [20]-[29]; Ex P1, 118, 139ff, 174ff). As at that date, the unpaid balance of the Mikcon Group Contributions to be paid under the DOCA was $1,061,538.52 (“Outstanding Balance”) (SOC [30]; admitted Defence [30] but denying that the Mikcon Group Companies were obliged to pay that amount).

Claim against Mr Conneely under cl 2.6 of the Guarantee & Indemnity

1. [15]

   The Plaintiffs plead (SOC [31]-[32]) that, by cl 2.6 of the Guarantee & Indemnity, following the termination of the DOCA on 21 November 2022, Mr Conneely became, and continues to be, liable to pay the Outstanding Balance and all other amounts payable under the DOCA to Messrs Hogan and Sprowles and has not paid that amount.

2. [16]

   The Plaintiffs seek judgment in the amount of $1,061,538.52 against Mr Conneely, on the basis that this is the amount that was due but not paid by Mikcon Group Companies under the DOCA. Mr Jameson, who appears for the Plaintiffs, submits that:

3. [17]

   Mr Jameson also submits that:

4. [18]

   As I noted above, although Mr Conneely and the Mikcon Group Companies did not appear at the hearing, their Defence denies that any amount was payable by them to the Deed Fund or to Messrs Hogan and Sprowles under the DOCA. Mr Jameson responds that:

5. [19]

   I recognise that cl 4.1 of the DOCA contemplated that the Deed Fund “shall comprise”, inter alia, the Director Contribution and the Mikcon Group Contributions (as defined) and contemplated the payment of those amounts. I am satisfied that there was an obligation to make payment to the Deed Fund, at least under cl 4.2 of the DOCA to which I have referred above. Although that clause was headed “Time for payment”, it used mandatory language (“shall”) in respect of the payment of the Director Contribution, necessarily by Mr Conneely, and the Mikcon Group Contribution (as defined), necessarily by the Mikcon Group Companies. That conclusion is reinforced, reading the DOCA and the Guarantee & Indemnity together, by the fact that cl 2.6 of the Guarantee & Indemnity provides for Mr Conneely to pay Messrs Hogan and Sprowles the amounts which the Mikcon Group Companies were otherwise obliged to pay under the DOCA if the DOCA had survived and not been terminated. That clause plainly proceeds on the basis that there was an obligation on the Mikcon Group Companies to pay those amount under the DOCA. This conclusion is sufficient to support the first order sought by the Plaintiffs against Mr Conneely, namely judgment in the sum of $1,061,538.52 where there is no apparent dispute as to the quantification of that amount.

Claim for interest under the Guarantee & Indemnity

1. [20]

   The Plaintiffs also plead (SOC [34]) that Mr Conneely and the Mikcon Group Companies are jointly liable to pay interest on the Outstanding Balance to Messrs Hogan and Sprowles, pursuant to cl 8.1 of the Guarantee & Indemnity. The Plaintiffs quantify that claim as $390,043.53 (to be updated up to the date of judgment) for the period 21 November 2022 to 5 December 2024.

2. [21]

   Mr Jameson submits:

3. [22]

   Ordinarily, the termination of a contract such as the DOCA would discharge the parties to that contract, relevantly the Mikcon Group Companies, from obligations of future performance under it, and Messrs Hogan and Sprowles rightly do not contend that cl 2.6 of the DOCA alters that ordinary position in respect of future payments of contributions by the Mikcon Group Companies. However, I accept that the effect of cl 2.6 of the Guarantee & Indemnity was that, if the DOCA was terminated, Mr Conneely was immediately obliged to pay to Messrs Hogan and Sprowles the amounts which the Mikcon Group Companies were otherwise obliged to pay under the DOCA as if it had survived and had not been terminated, and that supports an obligation on his part to pay interest on the amount due under cl 8.1 of the Guarantee & Indemnity.

4. [23]

   On balance, I also accept Mr Jameson’s submission that the effect of cl 8.1 of the Guarantee & Indemnity is to impose an obligation to pay interest on all of the guarantors (including the Mikcon Group Companies) in respect of any amount due and payable by any of them under Guarantee, where that clause does not limit the obligation to pay interest by a guarantor to an amount unpaid by that guarantor. In these circumstances, notwithstanding that the Mikcon Group Companies likely did not have any obligation to any amount by way of principal to Messrs Hogan and Sprowles, following the termination of the DOCA, they are liable under cl 8.1 of the Guarantee & Indemnity for the payment of interest on the amount which was due and payable, but was not paid, by Mr Conneely under cl 2.6 of the DOCA.

5. [24]

   I also accept that the provision for interest at the rate specified in cl 8.2 of the Guarantee & Indemnity excludes the interest rate which would otherwise be applicable under s 100 of the Civil Procedure Act 2005 (NSW) (“CPA”), by reason of s 100(3)(b) of the CPA: Chu v Haddad [2014] NSWSC 1720. The order sought by the Plaintiffs against Mr Conneely and the Mikcon Group Companies should therefore be made, subject to a recalculation of that interest to the date of judgment.

Effect of the charge under cl 3 of the Guarantee & Indemnity

1. [25]

   The Plaintiffs plead (SOC [35]-[36]) that the charge granted by Mr Conneely of his interest in the Castle Hill Property, pursuant to cl 3 of the Guarantee & Indemnity, secures the payment of, relevantly, the amount claimed against Mr Conneely and interest and seek orders that, pursuant to s 66G of the Conveyancing Act 1919 (NSW) (“Conveyancing Act”), Mr Sprowles be appointed as trustee for the sale of the Castle Hill Property. Mr Jameson submits that:

2. [26]

   Clause 3 of the Guarantee & Indemnity provided that the charge was granted as security for Mr Conneely’s obligations under the DOCA, which include the amount payable under cl 2.6 of the DOCA and interest payable by him under cl 8.2 of the DOCA. I am satisfied that the declaration sought by the Plaintiffs in that regard should be made.

Appointment of trustee for sale under s 66G of the Conveyancing Act

1. [27]

   The Plaintiffs in turn seek the following orders under s 66G of the Conveyancing Act in respect of the sale of the Castle Hill Property. Section 66G(1) and (3) of the Conveyancing Act relevantly provide that:

2. [28]

   The term “co-owner” is defined in s 66F of the Conveyancing Act as follows:

3. [29]

   Mr Jameson submits and I accept that the reference to “incumbrancer” here is to be read as “incumbrancee”: Boyd v Thorn (2017) 96 NSWLR 390 at [20] and that Messrs Hogan and Sprowles are co-owners of the Castle Hill Property by reason of their charge over Mr Conneely’s interest in the Castle Hill Property. Mr Conneely and the Mikcon Group Companies did not raise any contrary contention in their Defence.

4. [30]

   In Matta v Matta at [9], I observed that:

5. [31]

   Mr Jameson in turn submits that:

6. [32]

   I accept that submission, subject to the several matters raised by Mr Conneely and the Mikcon Group Companies in their Defence, which I will shortly address, and am reinforced in that view by the fact that an order under this section provides the most effective means to realise Mr Conneely’s interest in the Castle Hill Property so as to meet proper third party claims against that interest.

7. [33]

   I recognise that Mr Conneely and the Mikcon Group Companies respond to this claim (Defence [36]) that:

8. [34]

   I do not accept the first of those propositions. As I have found above, by cl 2.6 of the Guarantee & Indemnity, Mr Conneely assumed an obligation, which would not otherwise have existed, to pay the amount that would have been due by the Mikcon Group Companies as future contributions to the Deed Fund, had the DOCA not been terminated. The second proposition does not arise, because the Plaintiffs now seek an order for the appointment of Messrs Hogan and Sprowles, not a single natural person, as trustee for sale.

9. [35]

   Mr Jameson refers to the suggested conflict of interest with reference to Arrow Custodians Pty Ltd v Pine Forests of Australia Pty Ltd (2006) 18 BPR 35,209 at [21], where Young CJ in Eq observed that:

10. [36]

    Mr Jameson submits that, here:

11. [37]

    I am not persuaded that a real and sensible conflict of interest arises, where Messrs Hogan and Sprowles and all other claimants on the sale proceeds of the Castle Hill Property have a common interest in maximising the sale price and minimising the sale costs, and the net sale proceeds will be paid into Court so that the Court and not Messrs Hogan and Sprowles will determine completing claims to them.

12. [38]

    I do not accept the fourth proposition, where neither the value of the property nor Porters’ claim is established by evidence and it is in the interests of all claimants to sell the Castle Hill Property so that their respective claims to its proceeds may be adjudicated and met, to the extent the proceeds of sale of Mr Conneely’s interest in that property are sufficient to do so.

13. [39]

    For these reasons, I will make the orders sought by the Plaintiffs under s 66G of the Conveyancing Act and associated orders.

Orders

1. [40]

   I direct the Plaintiffs to bring in short minutes of order to give effect to this judgment, including an updated interest calculation, by 18 December 2024 when the matter is next listed for directions, including in respect of the steps to be taken to determine the claims of the third party Defendants against the sale proceeds of Mr Conneely’s interest in the Castle Hill Property.