In the matter of Glenfyne Farms International AU Pty Ltd (in liquidation); In the matter of GI Commercial Pty Ltd

1. [1]

   HER HONOUR: In the two proceedings before the Court:

2. [2]

   Glenfyne Farms and GI Commercial are companies in which Mr Tai effectively owns 49% of the shares and Graham and Julie Flynn effectively own 51% of the shares. Using these companies, Mr Tai and Mr and Mrs Flynn proposed to fatten beef cattle on a property at Narrandera, New South Wales, for export to China. Those business arrangements have come to nought. Mr Tai is deeply concerned about the conduct of the business by Mr Flynn.

3. [3]

   Mr Flynn filed an affidavit with the Court but did not appear before me, and would have required leave to do so. The plaintiffs’ counsel read two paragraphs of Mr Flynn’s affidavit, in which Mr Flynn agreed that GI Commercial should be liquidated, and with the same liquidator as Glenfyne Farms, “to ensure that a full investigation can be carried out”. I note that Mr Flynn’s affidavits comprise 19 pages and 147 paragraphs. It is reasonable to assume that Mr Flynn has something to say about Mr Tai’s allegations and that any liquidator will have to investigate any complaints made by either Mr Tai or Mr Flynn in due course.

4. [4]

   Given Mr Flynn’s agreement that the same liquidator be appointed to Glenfyne Farms and GI Commercial, the only issue is whether a resolution posed by Mr Tai at a meeting of creditors of Glenfyne Farms to appoint his preferred liquidators, which failed, should be treated as having passed under section 75-43 of the Insolvency Practice Schedule (Corporations).

5. [5]

   In 2013, Mr Tai, Mr Flynn and their respective companies entered into a Joint Venture Deed under which it was proposed that Glenfyne Farms would purchase land and water rights and commence a farming and grazing business under the management of Mr and Mrs Flynn. In 2014, Glenfyne Farms purchased land with finance from ANZ Bank. It is readily apparent from the exhibit to Mr Tai’s affidavit that the transactions which occurred over the life of the companies and the joint venture are complicated and numerous. Put very broadly, further discussions ensued between the parties in respect of their precise shareholdings and interest in the joint venture, further finance needed to conduct the business and their obligations to further contribute to the venture or secure additional finance. Whilst each was represented by solicitors, Mr Tai did not necessarily appreciate the implications of the transaction documents or that the transaction documents did not accord with his discussions with Mr Flynn over time.

6. [6]

   In 2016, a small portion of the farm was sold, with the proceeds to be used as working capital. In 2017, matters were complicated by a director in Glenfyne International Limited, Mr Wong, commencing proceedings against Glenfyne Farms in the Supreme Court of New South Wales seeking a declaration of an interest in the farm. By late 2017, disagreements and some confusion appear to have emerged between the parties in relation to the preparation of financial statements for the companies, and the contents and adequacy of those financial statements. On 27 October 2017, Mr Tai resigned as a director of Glenfyne Farms. Mr Tai says he was asked to guarantee further finance for the company and was not prepared to do so without knowing more about the financial state of the companies.

7. [7]

   In February 2018, Mr Tai sought to be reappointed as a director of Glenfyne Farms. Mr Tai’s solicitor wrote to Mr Flynn’s accountant, Mr Moustacas of Strategic Wealth Management Pty Limited, stating that Mr Tai resigned in circumstances in which he was “taken by surprise and put on the spot.” Mr Moustacas replied advising that he did not accept Mr Tai’s version of the meeting, having compared it with his file note:

8. [8]

   On 24 April 2018, Mr Tai’s solicitors wrote to Mr Flynn expressing significant concerns about Mr Flynn’s conduct of the company, its assets and the joint venture, and said that Glenfyne International Holding Limited considered it had been, and continued to be, unfairly treated. On 30 April 2018, Mr Flynn’s solicitor, Tom Crilly of Crilly Lawyers Pty Ltd, replied denying that this was so and seeking information as to third parties who it was suggested had funded Mr Tai’s contributions to the company. So far as I can see from Mr Tai’s affidavit and the exhibited documents, there was no response to Mr Crilly’s letter.

9. [9]

   On 9 July 2018, Glenfyne Farms executed a contract of sale for the farming land and water rights in the amount of $3.5 million. The sale was completed on 8 August 2018 and, after discharge of mortgages, $510,258 was payable to the company and paid into its bank accounts. Mr Tai says that he was unaware that the farm was sold and did not agree to this.

10. [10]

    On 7 September 2018, Mr Gladman was appointed as an administrator of Glenfyne Farms, having been referred by Mr Moustacas. Mr Gladman completed a declaration of independence, relevant relationships, and indemnities. Mr Gladman declared that he had not provided any professional advice to the company other than advice on the company’s insolvency, nor received an indemnity or an upfront payment for remuneration. He identified no real or potential risks to his independence. Mr Gladman noted that Strategic Wealth Management Pty Limited had previously referred other appointments to Hall Chadwick.

11. [11]

    Mr Gladman declared that, prior to his appointment, he had had three telephone conversations with Mr Moustacas on 6 July, 3 August and 9 August 2018 and attended two meetings (a two hour meeting with Mr Moustacas, Mr Flynn and Mr Crilly on 13 August 2018 and a 35 minute meeting with Mr Moustacas on 30 August 2018) for the purpose of discussing and understanding the background, nature and business of the company, its current financial position, available options in the case of insolvency and the possible appointment of an administrator. Mr Gladman said that he received no remuneration for any advice provided during these meeting or telephone conversations. Mr Gladman did not consider this pre-appointment advice to influence his ability to fully comply with his statutory and fiduciary obligations associated with the administration of the company in an objective and impartial manner.

12. [12]

    On 7 September 2018, Mr Flynn completed a Report as to Affairs in respect of Glenfyne Farms. He listed the following unsecured creditors:

First meeting of creditors

1. [13]

   Although a notice to creditors of 10 September 2018 was sent to Mr Tai, it did not come to his attention in Hong Kong until 27 September 2018. It would appear that, unhelpfully, Mr Flynn had not given Mr Gladman the contact details of Mr Tai’s Australian solicitor nor Mr Tai’s email address in Hong Kong.

2. [14]

   On 18 September 2018, the first meeting of creditors was held. Mr Flynn and Mr Moustacas participated by telephone. Mr Tai did not attend as he was not aware that an administrator had been appointed. Mr Gladman explained the role of the administrator and asked creditors to provide him with any information which may assist with investigating the company’s affairs.

First report to creditors

1. [15]

   On 28 September 2018, Mr Gladman submitted his first report to creditors. Mr Gladman explained that since his appointment, he and his staff had attended to the following matters:

2. [16]

   Mr Gladman advised that unsecured creditors could expect to receive a dividend if the company was placed into liquidation. He recommended that this should happen, and proposed to ask creditors to make a decision regarding this on 9 October 2018. In his report, Mr Gladman noted that the company’s only income from 1 July to 31 August 2018 was the capital gain on the sale of the farm (emphasis added):

3. [17]

   Further explanation of this is given by Mr Gladman in his report, being:

4. [18]

   Mr Gladman noted that the sale of land included the water access licences held by the company together with the plant and equipment, primarily consisting of fixtures attached to the land:

5. [19]

   Further, Mr Gladman reported that Mr Flynn had disclosed in his completed Director’s Questionnaire that he had acquired plant and equipment of the company at its written down value, which was off-set against funds owing to the partnership:

6. [20]

   Mr Gladman said his preliminary investigations indicated that insolvent trading offences may have been committed by Mr Flynn which would be reported to ASIC. Further, the company may have an action for $51,568 as an “unreasonable payments to director” in respect of the plant and equipment transferred to Mr Flynn:

7. [21]

   Mr Gladman noted that, of the sales proceeds of $510,258, he had recovered $84,900 from the closure of the company’s bank account. He had investigated where the monies had gone (emphasis added):

8. [22]

   Mr Gladman considered that the company may have been trading while insolvent from at least 30 June 2015, but the loss incurred by unrelated unsecured creditors since that time was $3,796:

9. [23]

   Further, Mr Gladman reported that his initial investigations into Mr Flynn’s financial position indicated that he may not have sufficient assets to meet a judgment in respect of insolvent trading. Further investigations would need to be undertaken by a liquidator including, potentially, a public examination of Mr Flynn. Mr Gladman’s report was thorough and indicated what the Court wishes to see from an administrator, that is, an objective, impartial and detailed review of a company’s affairs with an eye to any breaches of the Corporations Act and a willingness to investigate further where appropriate.

10. [24]

    Mr Gladman’s fees to that point were $31,421 plus GST. Mr Gladman sought approval of remuneration to 9 October 2018 to a capped amount of $15,000 plus GST or, if a liquidator was appointed, to a capped amount of $30,000 plus GST.

Mr Tai contacts the administrator

1. [25]

   On 2 October 2018, Mr Tai’s solicitor wrote to Mr Gladman advising that Mr Tai was not aware until recently that an administrator had been appointed, nor that the farm had been sold. Mr Tai’s solicitor advised that Mr Flynn “had no right to cause [Glenfyne Farms] to pay the debts of the G&J Flynn Partnership or of any other entities associated with Mr Flynn, as he did.”

2. [26]

   On 5 October 2018, Mr Gladman replied that he had been provided with details of Mr Tai’s mailing addresses from the company’s external accountant and had despatched his initial notice to creditors via post to all known creditors at that time but would send all future correspondence to Mr Tai’s solicitors. Mr Gladman sought a copy of the agreement between Mr Tai and Mr Flynn which superseded their shareholder agreement as to the trading and management of the farming business in the manner described in Mr Tai’s letter, and asked that Mr Tai complete a proof of debt. On 8 October 2018, Mr Tai’s solicitor advised that the changes in the shareholder agreement had not been varied by a single document but by a combination of oral agreements and email exchanges, further evidenced by the conduct of the parties, and that it was not possible to complete a proof of debt.

3. [27]

   On 8 October 2018, Mr Tai’s lawyers wrote to Mr Crilly offering to purchase the debt owed by Glenfyne Farms to him (emphasis added):

The failed resolution

1. [28]

   On 9 October 2018, a second meeting of creditors took place. Mr Tai attended. Mr Tai’s solicitor took notes of the meeting and has also deposed to what happened. Her evidence does not depart from Mr Gladman’s minutes of meeting save it confirms that Mr Gladman gave a detailed explanation of his investigations to date, including:

2. [29]

   It was resolved that Glenfyne Farms be wound up. Mr Tai proposed that Jason Porter and Fabian Micheletto be appointed as liquidators. The minutes record:

3. [30]

   The resolution to appoint Mr Porter and Mr Micheletto was voted upon, lost on the voices and a poll taken. The result was that two proxy holders voted in favour of the appointment of Mr Porter and Mr Micheletto, being Mr Tai and his solicitor, representing $552,228 of unsecured creditors, whilst three voted against the resolution, being Mr Flynn, Mr Crilly and Mr Moustacas on behalf of unsecured creditors totalling $245,550.50. The minutes continue:

4. [31]

   The resolutions in relation to Mr Gladman’s remuneration were also approved.

These proceedings

1. [32]

   On 21 November 2018, the two proceedings were commenced. On 11 January 2019, Mr and Mrs Flynn’s solicitor, Mr Crilly, wrote to Mr Tai’s solicitor proposing to resolve the proceedings by appointing an independent liquidator to ensure there is no perceived or actual bias. On 21 January 2019, Mr Tai’s solicitor rejected this proposal (emphasis added):

2. [33]

   On 7 February 2019, Mr Crilly replied confirming that his client would consent to the appointment of an independent liquidator to both companies and enclosed signed consents to act from three independent liquidators with whom the company and his clients had not had any prior relationship or contact. Mr Crilly sent a further letter following up on this proposal on 12 February 2019, advising that, if he did not hear from Mr Tai’s solicitor, his clients would file an application to seek leave to appear and be heard in the proceedings. Mr Crilly added that his client was preparing a statement of claim seeking damages arising from breach of the joint venture agreement. Mr Tai’s solicitor replied advising that Mr Tai did not oppose Mr and Mrs Flynn seeking leave to be heard on the application, albeit suggesting there was “a substantial degree of hypocrisy in the position your clients now assert.” On 18 February 2019, Mr Crilly advised that his clients would not be appearing at the matter’s hearing that morning.

3. [34]

   Subsection 75-43 of the Insolvency Practice Schedule (Corporations), being Schedule 2 to the Corporations Act 2001 (Cth), provides:

4. [35]

   This section came into effect on 1 March 2017 and the case law is, therefore, limited. In the matter of Iris Diversified Property Pty Ltd (in liquidation) [2018] NSWSC 834 is the only judgment on this section to date. In that case, an owners’ corporation was the largest creditor of the company and represented 90% of the creditors’ claims admitted for voting purposes at the meeting. A related company, Iris Group Management Pty Ltd, claimed to be owed a debt estimated to be $207,000. The judgment of Black J focussed mainly on section 75-41, which was the primary ground and on which his Honour was prepared to make orders, but, obiter, his Honour considered the alternative application under section 75-43. At [33]:

5. [36]

   Cases under the earlier equivalent provision, section 600C of the Corporations Act 2001 (Cth), also assist. In Global Realty Development Corp v Dominion Wines Ltd & Ors (2005) 56 ACSR 474; [2005] NSWSC 1221 at [25], Barrett J summarised the applicable principles, albeit in the context of the former and relevantly indistinguishable section 600B:

6. [37]

   In the matter of Free Wesleyan Church of Tonga in Australia Inc (administrators appointed) Phoenix Lacquers & Paints Pty Limited v Free Wesleyan Church of Tonga in Australia Inc (administrators appointed) & Ors [2012] NSWSC 214, Black J refused to make an order under section 600C of the Corporations Act, noting at [40]:

7. [38]

   In that case, the only matter identified as impeaching the administrator’s exercise of his casting vote was that he had an interest in the outcome, but Black J did not consider that this was sufficient. His Honour accepted the administrator’s evidence as to his reasons for exercising the casting vote. His Honour noted that the evidence before the Court indicated that the administrator could properly have formed the view that it was in the interests of the creditors generally, and consistent with the objectives of Part 5.3A for the administrators to remain in office:

8. [39]

   Before making an order under section 75-43, the requirements of subsection (1) and (3) must be satisfied. The problem here is the same one encountered in Iris Diversified Property. An administrator is entitled to exercise a casting vote under section 75-115 of the Insolvency Practice Rules (Corporations) 2016, which provides:

9. [40]

   It can be seen from the above that the administrator may exercise a casting vote in favour of the resolution removing him or her, or abstain from voting, but is not entitled to exercise a casting vote against the resolution. As such, Mr Gladman was not entitled to exercise a casting vote against the resolution proposed by Mr Tai and the resolution simply was not passed. Consequently, the application which is before the Court, relying on section 75-43 of the Insolvency Practice Schedule (Corporations), is ill-founded as sub-section (1)(b) is not satisfied.

10. [41]

    In any event, I would not have been minded to grant the relief sought.

11. [42]

    First, Mr Tai is concerned that Mr Gladman did not send the notice of his appointment to Mr Tai in Hong Kong by means other than post, or to his Australian solicitors. Mr Gladman cannot be blamed for this, it seems to me, as he simply acted on the basis of inadequate information he was given by Mr Flynn.

12. [43]

    Second, Mr Tai criticises Mr Gladman’s report to creditors as apparently showing a serious lack of critical analysis. I do not think Mr Tai’s criticisms are a fair assessment of Mr Gladman’s report, which seems to have identified each of the transactions about which Mr Tai is concerned and expressed an intention to investigate them.

13. [44]

    Third, Mr Tai considered Mr Gladman’s reasons for exercising his casting vote to be unreasonable and to show a lack of judgement in circumstances where Mr Gladman was aware that Mr Crilly and Mr Moustacas were holding themselves as creditors in order to advance the position of their client, Mr Flynn. As I have already said, Mr Crilly and Mr Moustacas were not obliged to sell their debts to Mr Tai, nor can criticism be made of Mr Gladman as a consequence of their refusal to do so.

14. [45]

    Fourth, unlike Iris Diversified Property and Brisconnections Management Company Ltd v Burness [2009] FCA 626; (2009) 72 ACSR 233, none of the creditors are “truly independent”. Both profess an interest in investigating the affairs of the company.

15. [46]

    Fifth, Mr Tai says that it may be necessary for the liquidator to investigate Mr Moustacas, including at a public examination. Mr Tai does not consider it appropriate for any such investigation to be carried out by a liquidator who obtained the liquidation role by way of referral from Mr Moustacas. Whilst I doubt that Mr Gladman is so faint-hearted, he is on notice that Mr Tai expects Mr Gladman to fully discharge his obligations as a liquidator.

16. [47]

    Sixth, and probably most significant, Mr Tai does not have confidence in Mr Gladman and wants Mr Flynn’s conduct to be investigated by a person other than Mr Gladman, who was appointed by Mr Flynn. Mr Tai has offered to provide $40,000 of initial funding for such investigations, if and only if the liquidators are replaced. The availability of funding for the liquidator is a relevant, but not determinative, consideration. It has to be balanced against the work which has already been done by the current liquidator. As Black J said in In the matter of ACN 151 726 224 Pty Ltd (in liq) previously Ridley Capital Holdings Pty Ltd [2016] NSWSC 1801 at [44]:

17. [48]

    The amount of funding offered does not seem to me to do any more than enable the new liquidators to effectively replicate the work of the current liquidator, but probably not materially advance the liquidation overall. Those funds, it seems to me, would be better directed to funding the current liquidator to advance the work already commenced. Mr Gladman appears to me to be ready, willing and able to undertake the necessary investigations and has already conducted preliminary work to enable him to do so in a cost-effective manner.

18. [49]

    In their Originating Process the plaintiffs relied, in the alternative, on section 459A or section 461 and section 472 of the Corporations Act. The advantage which it was said attached to a Court-appointed liquidator rather than the liquidator having been appointed by creditors is that it would mean that both companies would be subject to identical processes. This does not appear to me to confer any particular advantage in circumstances where Glenfyne Farms has had a liquidator since October 2018, and a liquidator is yet to be appointed to GI Commercial. The process will not be aligned as matters already stand. Nor would that, itself, warrant the additional expense entailed with replacing the current liquidator.

19. [50]

    In written submissions, although not in the Originating Process, the plaintiffs sought, in the alternative, to rely on section 90-15 of the Insolvency Practice Schedule (Corporations), which provides:

20. [51]

    Such orders include that a person cease to be the external administrator of the company or that another registered liquidator be appointed as the external administrator: section 90-15(3)(a) and (c). Subsection (4) specifies matters that may be taken into account before making such an order, being:

21. [52]

    These considerations, albeit not exclusive, suggest that there should be some failure on the part of the liquidator to attend to their duties before an order is made under section 90-15. This is confirmed by subsection (5), which empowers the Court to make orders that an external administrator be personally liable for the costs of an application for such an order and, in subsection (6), the power to order that an external administrator is personally liable to make good losses caused to the company. However, I note that Black J did not approach section 90-15 as so confined in In the matter of Manband Pty Limited (in liquidation) (subject to Deed of Company Arrangement) [2018] NSWSC 1282, where his Honour made an order under section 90-15 to terminate a member’s voluntary winding up.

22. [53]

    The plaintiffs submit that an order should be made under section 90-15 because Mr Flynn agrees to Mr Gladman being replaced, and so the only question is whether the replacement should be those put forward by Mr Tai or someone else. I do not think this accurately reflects the terms of Mr Flynn’s correspondence on this issue. Nor do I see any reason to make an order under section 90-15.

23. [54]

    For these reasons, I dismiss the application in respect of Glenfyne Farms and appoint Mr Gladman as liquidator of GI Commercial, subject to receiving a consent to act as such.

24. [55]

    In proceedings 2018/357721, I make the following orders:

    1. (1)

       Dismiss the proceedings.

    2. (2)

       Plaintiffs to pay the defendants’ costs of the proceedings.

25. [56]

    In proceedings 2018/357706, I make the following directions:

    1. (1)

       Direct the parties to submit a form of consent from Steve Gladman to be appointed as liquidator of GI Commercial Pty Ltd within 7 days, together with a form of order to give effect to that appointment, including:

    2. (2)

       If consent is not available, grant liberty to re-list the proceedings.