[2024] NSWSC 701

PNR International Pty Ltd v CII Group Pty Ltd

Leave granted nunc pro tunc to the provisional liquidators to enter into relevant agreements on behalf of the companies (see [43]).

Catchwords

CORPORATIONS — winding up — liquidators — powers of court-appointed provisional liquidators — where provisional liquidators have entered into contracts on behalf of the companies — where those agreements have no fixed terms or involve ongoing obligations — where court approval under s 477(2B) is sought nunc pro tunc — where there is no evidence of error of law, bad faith or impropriety — where the transactions are commercially reasonable and serve the proper and expeditious liquidation and winding up of the companies

Cases cited

Alfonso, in the matter of Pinnacle Fire Protection Pty Ltd (in liq) v Woods (2021) 157 ACSR 217;[2021] FCA 1402
In the matter of Kevin Jacobsen Pty Limited (in liquidation)[2016] NSWSC 538
In the matter of Milgerd Nominees Pty Ltd[2019] NSWSC 311
In the matter of One.Tel Limited[2014] NSWSC 457; (2014) 99 ACSR 247

Legislation cited

Corporations Act 2001 (Cth), § 477

Judgment

INTRODUCTION

[1]
This is an application brought by Andrew Sallway and Duncan Clubb, the Provisional Liquidators of Crown West End Pty Ltd and other companies, being the fourth to fourteenth, sixteenth to thirty-fourth, thirty-eighth, and fortieth to forty-fifth defendants and the fifth cross-defendant in the proceedings, all of which are companies within the broader Crown Group.
[2]
The relevant Crown Group entities, for the purposes of the present application, are Crown West End (the thirtieth defendant), Crown W Pty Ltd and Crown Landmark Pty Ltd (collectively, the Applicants).
[3]
The application is brought pursuant to s 477(2B) of the Corporations Act 2001 (Cth) by interlocutory process filed 31 May 2024 seeking, inter alia, orders nunc pro tunc approving the entry by the Provisional Liquidators on behalf of the Applicants into four separate Agreements, namely two contracts for the sale and purchase of land, a Termination Deed, and a Lease, the specific details of which are canvassed below.
[4]
The court’s approval under s 477(2B) is sought retrospectively, in circumstances where the Provisional Liquidators have already assessed that entry into the Agreements will meet the existing demands of the provisional liquidation and where the Provisional Liquidators have, accordingly, executed (or taken steps to execute) the Agreements.
[5]
On 3 June 2024, notice of the application was given to the solicitors for the shareholders of Crown Group Holdings Pty Ltd, the parent company of Crown Group, being companies associated with Paul Sathio and Iwan Sunito.

SALIENT FACTS

[6]
The Provisional Liquidators were appointed as joint and several provisional liquidators of the Crown Group companies by court order on 11 August 2023. The Provisional Liquidators are working on an assets realisations strategy to generate a pool of funds to pay out creditors in full and return funds to shareholders. This has involved reviewing submissions from agents and selecting agents to undertake the sale of real property of the Crown Group, formulating marketing strategies for the sale of the real property, assessing bids and offers of the real property against a valuation report, negotiating with potential purchasers around the terms of the sale of the real property and instructing their solicitors in relation to the preparation of sale contracts.
[7]
Crown West End is the registered proprietor of a property located at 117 Victoria Street, West End, Queensland (West End Property). It is the main asset owned by Crown West End.
[8]
There is a mortgage over the West End Property held by National Australia Bank in the amount of approximately $15.45 million.
[9]
On 15 December 2023, the court made orders pursuant to s 477(2B) of the Corporations Act approving, nunc pro tunc, the entry by the Provisional Liquidators into a contract for the sale of the West End Property. That contract was dated 24 November 2023 (First West End Contract) with a purchase price of $66 million and stated settlement date of 30 March 2024. That day being a Saturday, and the following Monday being a public holiday in Queensland, settlement was scheduled for the next business day (Tuesday, 2 April 2024).
[10]
The purchaser (Victoria Riverside Pty Ltd) made several requests for extensions of the time for settlement, some of which were acceded to by the Provisional Liquidators. The details of those requests are as follows:
1. (1)
  On 2 April 2024, the purchaser requested and the Provisional Liquidators agreed that the date of settlement be extended to 5 April 2024.
2. (2)
  On 5 April 2024, the purchaser requested and the Provisional Liquidators agreed to a further extension to 12 April 2024.
3. (3)
  On 12 April 2024, the purchaser requested a further extension to 19 April 2024. The Provisional Liquidators did not consent to that request.
4. (4)
  On 16 April 2024, the Provisional Liquidators, through their solicitors, issued to the purchaser a notice to complete requiring that settlement take place on 30 April 2024.
5. (5)
  On 27 April 2024, the Provisional Liquidators received a further request from the purchaser for an extension of time for settlement to 31 May 2024. The Provisional Liquidators did not consent to that request.
6. (6)
  On 30 April 2024, the solicitors for the Provisional Liquidators wrote to the purchaser and confirmed that settlement would need to proceed that day.
7. (7)
  At 1:31pm on 30 April 2024, the purchaser emailed the Provisional Liquidators’ solicitors stating that it elected to exercise its contractual right to unilaterally extend the settlement period for a further five business days, to 8 May 2024.
8. (8)
  On 8 May 2024, the purchaser made a further (without prejudice) request that settlement be extended to 22 May 2024, to which the Provisional Liquidators consented.
[11]
On 15 May 2024, the purchaser’s solicitors informed the Provisional Liquidators that the purchaser would not be able to complete the First West End Contract on 22 May 2024. Crown West End has retained the deposit of $6.088 million.
[12]
On 16 May 2024, the First West End Contract was terminated by way of the Termination Deed. By its terms, the Termination Deed imposes ongoing obligations which apply for a period greater than three months and of no fixed term, including that Crown West End and the purchaser indemnify the Provisional Liquidators against any claims in respect of the Termination Deed and that the parties must keep the terms of the Termination Deed and any preceding negotiations confidential.
[13]
On 17 May 2024, the Provisional Liquidators caused Crown West End to enter into the Second West End Contract in respect of the West End Property, with 117 Victoria Street West End Pty Ltd as purchaser. The Second West End Contract stipulates a purchase price of $63.5 million and a settlement date of 14 August 2024. The parties’ obligations under the Second West End Contract are expressed to be subject to the court’s approval of the entry by the Provisional Liquidators into it.
[14]
The Second West End Contract, like the Termination Deed, imposes ongoing obligations which exceed three months, requiring:
1. (1)
  that Crown West End and the purchaser indemnify each other and the Provisional Liquidators against any claims which may or have been brought by a tenant of the West End Property;
2. (2)
  that the parties maintain confidentiality in respect of the terms of the Second West End Contract and any preceding negotiations;
3. (3)
  releases of the Provisional Liquidators of any claims; and
4. (4)
  an indemnity by the directors of Victoria Street in favour of the Provisional Liquidators against any claims incurred by Crown West End.
[15]
Crown W is the registered proprietor of the property located at Units 4 and 5 of 30–36 O’Dea Avenue, Waterloo, New South Wales (Waterloo Property).
[16]
Commonwealth Bank of Australia (CBA) has a registered mortgage over the Waterloo Property.
[17]
On 21 September 2023, the Provisional Liquidators engaged an agent for the sale of the Waterloo Property. With the Provisional Liquidators’ approval, the agent took steps to market and sell the Waterloo Property, including:
1. (1)
  posting about the property listing on social media platforms;
2. (2)
  issuing electronic direct mail to the agent’s database of over 7,000 investors advising on details of the Waterloo Property;
3. (3)
  advertising that the property was for sale on real estate websites;
4. (4)
  issuing information memoranda to clients of the agent; and
5. (5)
  canvassing investors and other potential purchasers.
[18]
In September 2023, the Provisional Liquidators engaged an auctioneer to seek to sell the Waterloo Property via auction, pursuant to advice they had received from a second sales agent engaged by them.
[19]
On 9 November 2023, the Waterloo Property was passed in at auction, no bids having been received. On that same day, the Waterloo Property was listed for sale via private treaty.
[20]
On 19 January 2024, Wearwood Pty Ltd made an offer to purchase the Waterloo Property for an amount of $1.55 million with a flexible settlement period.
[21]
A process of negotiation ensued, involving various offers and counteroffers, culminating in the acceptance by the Provisional Liquidators of an offer by Wearwood to purchase the Waterloo Property for $1.8 million, with a 21-day settlement period. That offer was made by Wearwood on 29 January 2024 and accepted by the Provisional Liquidators, on the advice of their sales agent, on 7 February 2024.
[22]
The offer-and-acceptance comprising the Waterloo Contract took place against the backdrop of ongoing litigation in this court between the Owners Corporation of the Waterloo Property, Crown W, and Crown Group Construction Pty Ltd (provisional liquidators appointed), relating to claims by the Owners Corporation for compensation for alleged acoustic and cladding defects with the Waterloo Property. I note that those proceedings are presently stayed and a directions hearing is scheduled for 16 August 2024. Wearwood is alive to the existence of those proceedings.
[23]
As with the Second West End Contract, the Waterloo Contract is subject to the Provisional Liquidators obtaining court approval to enter into it. The Waterloo Contract also contains ongoing obligations without fixed terms, including:
1. (1)
  an indemnity from Crown W in favour of Wearwood in respect of any claims made against it by a tenant of the Waterloo Property resulting from Crown W’s failure to perform or observe any obligations under the lease;
2. (2)
  obligations of confidentiality concerning its terms; and
3. (3)
  an indemnity from Crown W and Wearwood in favour of the Provisional Liquidators against any liability or loss occasioned by breach of the Waterloo Contract.
[24]
Crown Landmark is the registered proprietor of retail premises at Retail Shop 7, 31–39 Macquarie Street, Parramatta, New South Wales (Parramatta Property).
[25]
The Parramatta Property is leased by Bayti Pty Ltd, pursuant to a lease for a period of four years commencing on 25 November 2019. The original lease agreement gave Bayti as lessee an option to renew for a further four-year term beginning on 24 November 2023.
[26]
On 8 September 2022, Bayti served upon Crown Landmark a Notice of Exercise of Option, contractually obliging Crown Landmark to grant Bayti a new lease.
[27]
The renewed Lease is expressed to be conditional on the Provisional Liquidators obtaining court approval to enter into the Lease.

LEGAL PRINCIPLES

[28]
Section 477(1) and (2) of the Corporations Act set out the powers of a liquidator as follows:
[29]
Section 477(2B) of the Corporations Act imposes a limitation on the power of a liquidator to enter into an agreement on the company’s behalf, stating:
[30]
The principles pursuant to which the court exercises the discretion under s 477(2B) are well settled.
[31]
In In the matter of Kevin Jacobsen Pty Limited (in liquidation) [2016] NSWSC 538, Black J at [27]–[32] collected the authorities in the following way:
[32]
Approval nunc pro tunc can be given under s 477(2B) of the Corporations Act, the emphasis of the provision being on promoting the interests of the liquidation and the creditors, not the exercise of disciplinary functions over liquidators who delay seeking approvals under the section: Kevin Jacobsen, Black J at [74]–[75].
[33]
In In the matter of Milgerd Nominees Pty Ltd [2019] NSWSC 311, Black J dealt with an application for approval made pursuant s 477(2B) in respect of a contract for sale of land, saying at [18]–[20]:
[34]
In Alfonso, in the matter of Pinnacle Fire Protection Pty Ltd (in liq) v Woods (2021) 157 ACSR 217; [2021] FCA 1402, Cheeseman J at [14] set out the lengthy analysis of those principles developed by Brereton J in In the matter of One.Tel Limited [2014] NSWSC 457; (2014) 99 ACSR 247 at [26]–[30], and then at [15] summarised them as follows:

SUBMISSIONS

[35]
The Provisional Liquidators submit that orders pursuant to s 477(2B) of the Corporations Act are appropriate in respect of each of the Second West End Contract, the Termination Deed, the Waterloo Contract, and the Lease Agreement, on the basis that those four transactions are in the best interests of the creditors of each of the relevant companies.
[36]
In respect of the Second West End Contract, the Provisional Liquidators assert that entry into that contract without recommencing the sales process serves the interests of Crown West End’s creditors for the following reasons:
1. (1)
  A sale to Victoria Street avoided diminishment of the net sale proceeds from the sale of the West End Property which otherwise would have occurred through the costs of a new sales process.
2. (2)
  A sale of the West End Property to Victoria Street could be conducted swiftly, thereby minimising the accrual of interest on a secured mortgage over the West End Property.
3. (3)
  The fact that the diminution in the purchase price was offset by the retention of the deposit held by Crown West End following termination of the First West End Contract.
4. (4)
  The sale price is greater than that set out in the valuation obtained by the Provisional Liquidators, the sale proceeds will be applied to discharge the registered mortgage over the West End Property, the terms of the Second West End Contract are reasonable and represent commercial terms, and any surplus funds will be retained and applied in the provisional liquidation.
5. (5)
  The Second West End Contract was entered into after the Provisional Liquidators took advice from an experienced real estate agent.
[37]
In terms of the appropriateness of entering into the Termination Deed, the Provisional Liquidators submit that:
1. (1)
  The First West End Contract was not able to be completed in a reasonable time, putting at risk equity in the West End Property.
2. (2)
  Pursuant to the Termination Deed, Crown West End retained the deposit paid by Victoria Riverside in the amount of $6.088 million, which the Provisional Liquidators consider to be compensation for any potential loss to Crown West End, including in respect of interest, fees, holding costs and as explained above, any diminution in value on resale.
[38]
In respect of Crown W’s entry into the Waterloo Contract, the Provisional Liquidators contend:
1. (1)
  A competitive sales process was undertaken, the purchase price was within the range of market value expressed in the valuation obtained by the Provisional Liquidators in respect of a bespoke property, and the purchase price represented the highest bid obtained.
2. (2)
  The sale proceeds will be applied to discharge a mortgage over that Waterloo Property.
3. (3)
  The terms of the Waterloo Contract are reasonable and represent commercial terms.
4. (4)
  Any surplus funds will be applied in the provisional liquidation.
5. (5)
  No prejudice to the purchaser or creditors generally has been identified in relation to the extant defects proceedings, and the potential consequences of those proceedings have been taken into account in the contract.
[39]
In terms of the Lease entered into by Crown Landmark with Bayti, the Provisional Liquidators submit:
1. (1)
  The Lease represents a significant increase in rental compared to that previously paid and is within $500 per week of market rent.
2. (2)
  The Lease terms are reasonable and represent reasonable commercial terms.
3. (3)
  The Lease continues to provide revenue for Crown Landmark to meet its liabilities.
4. (4)
  The Lease was, based on the advice of a sales agent engaged by the Provisional Liquidators, likely to result in greater opportunities in the sale of the Parramatta Property.
5. (5)
  The Lease was entered into pursuant to a contractual right to renew on the part of the lessee, Bayti.

CONSIDERATION

[40]
On the evidence before me, I am satisfied that I should grant approval nunc pro tunc to the Provisional Liquidators’ entry into each of the Second West End Contract, the Termination Deed, the Waterloo Contract and the Lease.
[41]
I am mindful that I am not to second guess the commercial judgment made by the Provisional Liquidators in relation to each of these transactions. None of the transactions exhibit any sign of error of law, bad faith or impropriety. They are each reasonable and in the interests of the liquidations because they are consistent with the expeditious and beneficial administration of the winding up of Crown West End, Crown W and Crown Landmark respectively. The evidence also reveals that the Provisional Liquidators have acted swiftly in relation to each transaction.
[42]
In granting the approval, I make it clear that I am not approving the underlying transaction itself. The Provisional Liquidators have formed the view that each of the transactions is in the best interests of the creditors of the respective companies. I accept the submissions of the Provisional Liquidators as to why this is the case for each transaction.

ORDERS

[43]
Accordingly, for the reasons stated above, I am minded to make the following orders:
1. (1)
  The Interlocutory Process filed on 31 May 2024 be returnable ex parte and instanter.
2. (2)
  Pursuant to s 477(2B) of the Corporations Act 2001 (Cth), leave is granted, nunc pro tunc, for Andrew Sallway and Duncan Clubb as joint and several provisional liquidators of the Thirteenth, Fourteenth and Twenty-Sixth Defendants (Provisional Liquidators) to enter into:
3. (3)
  The Provisional Liquidators’ costs of and incidental to this application be paid out of the assets of CWE, Crown W and Crown Landmark in equal shares.