Minh Tan Tran v Nicols

By Amended Interlocutory Process the applicants, Minh Tan Tran (Tan), and Minh Tam Tran (Tam), seek an order that Steven Nicols, appointed by the Court as liquidator of T&T Air Conditioning Pty Ltd (T&T) be removed and that another liquidator be appointed in his stead.

The application was heard on 28 and 29 October 2015 when Mr M Rosenblatt, solicitor, appeared for the applicants and Mr EW Young, of counsel, appeared for the liquidator.

The basis upon which the applicants seek the liquidator’s removal relates to the liquidator’s conduct in repossessing two motor vehicles and in retaining certain funds in T&T’s account. It is necessary at this point to refer to the background to put the applicants’ claims in context.

T&T was established on 15 January 2007. Two other companies, T&T Airconditioning Assets Pty Limited (Assets) and T&T Airconditioning (Aust) Pty Limited (Aust) were established on 10 September 2013. Each of T&T, Assets and Aust have their registered office at the offices of Bruzzano & Associates, the accountant for each of the companies. Since the establishment of Assets and Aust each of the three companies’ principal place of business has been at Whyalla Place, Prestons NSW 2170 (the Prestons address).

Tam was a director of T&T from 15 January 2007 to 10 September 2013. Tan has been a director of T&T since 15 January 2007. Each of the applicants owns one ordinary share in T&T. The applicants are directors of and equal shareholders in Assets (owning one ordinary share each). Tam is the sole director and shareholder of Aust.

The applicants are brothers. They came to Australia from Vietnam and after some years in the employment of others, they started up their own air conditioning business. This business, operated by T&T, started out as a very small business and then grew into quite a large operation (tr 31).

On about 26 February 2015 the Deputy Commissioner of Taxation served a Creditor’s Statutory Demand on T&T at its registered office for an amount of $176,629.98 due under the BAS provisions of the Income Tax Assessment Act 1997 (Cth). That Demand was not met and on 27 April 2015 the Deputy Commissioner filed an Originating Process seeking an order that T&T be wound up. On 28 May 2015 orders were made that T&T be wound up; that Mr Nicols be appointed the liquidator of T&T; and that T&T’s costs of the proceedings were fixed in the amount of $2,473.61.

On 11 May 2015 there was received into T&T’s account by internet transfer from Hanna Constructions the amount of $112,830. On the same day $110,000 was transferred out of T&T’s account into Aust’s account leaving T&T’s account with a balance of $6,329.77. By 26 May 2015 there was a zero balance in T&T’s account.

On 25 May 2015 the registration of eleven of the motor vehicles in T&T’s fleet of vehicles were transferred out of T&T’s name and into Assets’ name. Another vehicle was transferred out of T&T’s name and into Assets’ name on 8 June 2015. Two of the vehicles, a Ford Ranger and an Isuzu, have Roads and Maritime Services (RMS) Certificates of Registration stamped as paid on 25 May 2015. The expiry date of the Isuzu registration is 8 December 2015. The expiry date of the registration of the Ford Ranger is 13 February 2016. Each of the Certificates of Registration includes the statements: “This certificate of registration identifies the registered operator of this vehicle. It is not proof of vehicle ownership. The garage address is shown below”. These statements are consistent with the approach adopted in respect of the NSW Registrable Vehicles Register that the RMS is required to maintain pursuant to s 64(1) of the Road Transport Act 2013. Section 64(2) of that Act provides:

The “garage address” in each of the Certificates of Registration for the Ford and the Isuzu is recorded as the Prestons address.

On 2 June 2015 the liquidator caused a letter to be sent to Tan requesting, among other things, the delivery up of T&T’s property. In response to this letter Frank Bruzzano, of Bruzzano & Associates, provided the liquidator with an “Appraisal Report” dated 25 May 2015, prepared for T&T by Tim O’Mara of O’Maras Valuers and Auctioneers. Its stated purposes included that it was “to assist in considering the financial affairs and circumstances of the subject entity” and “to arrive at a conclusion as to the value” of the motor vehicles “as at the effective date, 22 May 2015”. The Appraisal was on a “Sight Unseen Basis” and listed twelve vehicles including the Ford Ranger and the Isuzu. The total “fair market value in continued use” was recorded as $301,000. The “forced liquidation value” was recorded as $198,000.

In a questionnaire signed by Tan on 11 June 2015 the answer “No” was given to the question “Other than in the ordinary course of business, has the company disposed of any property in the past ten (10) years?”. In respect of the question “Is the business still trading?” the answer was “No”, and the date of cessation was recorded as “30/6/2014”. In other sections of the questionnaire Tan claimed that the directors/shareholders were creditors of T&T and that the amount of unsecured creditors was $646,000. The Report as to Affairs in respect of T&T signed by Tan on 10 June 2015 listed a “shareholders loan” in the amount of $646,879.

On 30 June 2015 RMS provided the liquidator with details of the change in the name of the registered operator of the T&T vehicles referred to above. The liquidator formed the view that the purported transfer of eleven motor vehicles registered in T&T’s name on about 25 May 2015 appeared not to be genuine or valid and that the transaction had no substance because it had not occurred for any consideration or value to T&T. The liquidator’s affidavit evidence was that on 9 July 2015 he arranged for the Ford Ranger to be repossessed from an address in Moorebank (the applicants’ residence); and that on 11 July 2015 he arranged for the Isuzu to be repossessed from the Prestons address. The vehicles were then securely stored.

In the first week of July 2015 the liquidator received a cheque payable to T&T in the amount of $37,730 drawn on the account of DCN Developments Pty Limited (DCN). The DCN cheque was banked into T&T’s account on about 9 July 2015.

On 13 July 2015 the applicants’ solicitors, Somerset Ryckmans (Ryckmans), wrote to the liquidator alleging that the liquidator had “wrongfully” taken possession of the Ford Ranger and the Isuzu on 10 and 11 July 2015. That letter included the following:

That letter requested the liquidator to contact Ryckmans to arrange the “immediate return of the vehicles” barring which Ryckmans advised they were instructed to take whatever action was required to achieve their return.

On 14 July 2015, the liquidator’s solicitors, Swaab Attorneys (Swaab), wrote to Ryckmans requesting “documentary evidence to substantiate” the contention that the vehicles were the property of Assets. On the same day Ryckmans provided the Registration Certificates for the two vehicles and asked the liquidator to make contact to arrange the “immediate return” of the vehicles. On the same day Swaab responded noting that Ryckmans had not proffered any documentary evidence in respect of any consideration paid for the transfer of the vehicles. Swaab requested that the registration of the vehicles be transferred back to T&T. On the same day Ryckmans wrote to Swaab in terms that included the following:

The “Journal List” referred to in that letter included the following:

Each of these entries had a reference “SOLD CARS” recorded in the final column. There was no evidence establishing why these entries were dated 31 March 2015, particularly in the light of the O’Mara Appraisal Report referring to the relevant date as 22 May 2015. Nor was there any evidence relating to the so-called “selling and auction costs” referred to in Ryckmans’ letter for which there was a 10% reduction in the value of the vehicles.

The Trial Balance Sheet that was enclosed with the letter from Ryckmans included costs for the running of motor vehicles (petrol $4,622.22; insurance and registration $1,963.20; and repairs and maintenance $5,640). It also included sales of $1,067,960.75; purchases of $819,575.79 and subcontractors for $50,670. The income total is recorded as $16,039.14 compared to the previous year of $35,451. No doubt these entries needed to be viewed in light of the fact that both the accountant and the applicants had claimed that T&T had ceased trading as at 30 June 2014.

On 29 July 2015 Swaab wrote again to Ryckmans advising that the liquidator did not accept that there had been a valid transfer of any of the vehicles and that he intended to sell the vehicles. That letter also included the following:

On 29 July 2015 Ryckmans served the Originating Process in proceedings 2015/223112 in which Assets and Aust sought declaratory relief in respect of the ownership of the vehicles and a declaration that the DCN cheque belonged to Aust and had been converted by the liquidator. Orders were also sought for the return of the two repossessed vehicles. Ryckmans served affidavits of Tam and Tan both sworn on 29 July 2015. The return date of the proceedings was 5 August 2015.

On 3 August 2015 Ryckmans served Tam’s affidavit of 3 August 2015 which included as an annexure a quotation addressed to DCN from Aust in respect of the supply and installation of an air conditioning system and other works for a total amount of $220,000. Although there was no documentary evidence of the acceptance of the quote, Tam’s affidavit included the claim that the $37,730 that T&T had received was a partial payment in respect of the job that Aust had quoted to DCN.

On 3 August 2015 Ryckmans wrote to Swaab suggesting that the liquidator should return the “$37k and the vehicles and the proceeding can continue if the liquidator wants to press his right to the vehicles, although we wonder what use they are to him considering the HP obligations”. On 4 August 2015 Ryckmans suggested that any resolution of the matter would also include “at least a partial walk away for costs to date and an undertaking that Assets will not deal with the vehicles pending the conclusion of the proceeding”. On the same day Ryckmans suggested to Swaab that they would not press their clients on the issue before they were advised whether there was some interest in the proposal generally and whether, if it were appropriate, costs could become costs in the cause. There was no response to Ryckmans’ communication and they wrote again late on 4 August 2015 asking what the liquidator’s position was for the following day.

At 5.41pm on 4 August 2015 Swaab wrote by email to Ryckmans in the following terms:

Approximately half an hour later Swaab wrote again to Ryckmans proposing directions which included the service of pleadings and affidavits and bringing the matter back before the Court on 15 October 2015.

On 5 August 2015 the parties appeared before Brereton J. The transcript of that directions hearing is in evidence (Ex A) and is relied upon by the applicants in support of their claim that the only reason the liquidator returned the vehicles was because of what they described as the “dim view” of the liquidator’s conduct expressed by his Honour (tr 99). Mr Rosenblatt sought an urgent resolution of the proceedings. His Honour noted that three days before the winding up order the transaction in relation to the vehicles had occurred. Mr Rosenblatt submitted that the liquidator had “no right to exercise self-help and grab these vehicles”. The following exchange then occurred between his Honour and Mr Young, counsel for the liquidator:

After further discussion the matter was set down for hearing on 13 August 2015.

On 6 August 2015 Ryckmans wrote to Swaab in terms that included the following:

That letter attached a draft affidavit of Sam Saad, a director of DCN. That affidavit included claims that DCN had accepted Aust’s quotation and Aust had performed the work described in the quotation. The draft affidavit also included a claim that Mr Saad could not recall precisely the payee entity on the cheque. However there was a claim that the intention was to make the payment to Aust.

On 7 August 2015 Swaab wrote to Ryckmans in the following terms:

On 7 August 2015 Ryckmans wrote to Swaab advising that under the “accepted agreement” the $37,730 could be transferred to the Ryckmans’ Trust Account. It was noted that the transfer of the funds and the return of the vehicles should happen by close of business on 11 August 2015. Although there was further communication between the solicitors the Short Minutes of Order were not finalised until 12 August 2015.

On 12 August 2015 Brereton J made orders in Chambers finalising the proceedings. Those orders provided: for the payment of $37,730 to Ryckmans’ trust account by 5pm on 12 August 2015; for the vehicles to be made available for collection by the same time; for the dismissal of the Originating Process; and an order that each party bear their own costs. The Court noted that the orders were made: without admission and without prejudice to the liquidator’s and T&T’s rights to the vehicles and to the funds; and without prejudice to or waiver of any claims that Assets and Aust had regarding the conduct of the liquidation. The Court also noted that the liquidator and T&T undertook that they would not seek to take possession of any of the vehicles identified in the orders except by agreement between the liquidator and Aust; that Aust undertook that it would not sell, dispose of, encumber or otherwise diminish the value of any of the vehicles identified in the order except upon giving seven days’ written notice to the liquidator; and that Aust would keep the vehicles in good condition and repair.

On 12 August 2015 the funds were transferred to the Ryckmans’ Trust Account and the vehicles were made available for collection.

On 26 August 2015 the applicants filed the Interlocutory Process seeking an order for the removal of the liquidator. An inconsequential amendment to that Interlocutory Process was filed in Court on 28 October 2015. At the hearing on 28 and 29 October 2015 the applicants relied on their affidavits in the earlier proceedings sworn on 29 July 2015, an additional affidavit of Tam sworn on 3 August 2015 and one of Tan sworn on 19 October 2015. The liquidator relied upon his own affidavits sworn on 16 September 2015 and 23 October 2015. He also relied upon the affidavit of Corey Thomas Burke (a Senior Manager in the liquidator’s firm, Nicols & Brien) sworn on 16 September 2015. Tan, Tam and the liquidator were cross-examined.

Tam agreed that in the period 1 July 2014 to 23 May 2015 he and Tan received approximately $334,036.96 from T&T (tr 36). He said that Mr Bruzzano informed him of the winding up “situation” in the first week of May 2015 (tr 40). He gave evidence that it was Mr Bruzzano who suggested that the motor vehicles be transferred out of T&T’s name and into Assets’ name (tr 40). Tam gave evidence that Mr Bruzzano informed him that because T&T was no longer trading all the vehicles had to be transferred into Assets (tr 42). Tan also gave evidence that it was Mr Bruzzano’s idea that the vehicles be transferred (tr 52).

The applicants claim that T&T ceased trading on 30 June 2014. Tan claims that the reason the $110,000 was transferred out of T&T’s account on 11 May 2015 was because, although T&T had started the job for Hanna Constructions, Aust had finished the job (tr 59). However he agreed in cross-examination that most of the work on that job was done by T&T (tr 59).

The liquidator has reviewed the company’s Westpac account and it would appear that there is a serious issue as to whether T&T ceased trading on 30 June 2014. The liquidator’s evidence was that the books and records of T&T are in disarray and incomplete (tr 64). This does not seem to be seriously disputed.

The liquidator gave the following evidence in cross-examination about the retention of the amount of the DCN cheque (tr 69-70):

Mr Young submitted that the liquidator’s answer inaccurately referred to s 535 and it is clear he intended to refer to s 553C of the Corporations Act 2001 (Cth) in respect of an offset. That would appear to be the case but the point made by the applicants was that there was no mention of this claim in the correspondence prior to the settlement of the earlier proceedings.

The liquidator was pressed further in respect of his retention of the DCN proceeds and gave the following evidence in cross-examination (tr 71-73):

The liquidator was also cross-examined in relation to the repossession of the two motor vehicles. That cross-examination included the following (tr 81-84):

The application is made under s 473(1) of the Corporations Act which provides that a liquidator appointed by the Court “on cause shown” may be removed by the Court. The parties accept that “cause shown” is a broad concept and that the relevant principles in respect of the application are conveniently set out in SingTel Optus Pty Limited & Ors v Weston [2012] NSWSC 674 at [149]-[165] (although that was an application under s 503 of the Act) and In the matter of St Gregory’s Armenian School (in liq) [2012] NSWSC 1215 at [23]-[35].

Mr Rosenblatt also relied upon the following portion of Austin J’s judgment in Domino Hire Pty Ltd v Pioneer Park Pty Ltd [2003] NSWSC 496 (adopted by Barrett J in Apple Computer Australia Pty Ltd v Wily [2003] NSWSC 719 at [36]):

Mr Rosenblatt submitted that the liquidator is unfit for office and should be removed because he has misconducted himself in two ways. First it is contended that he committed a trespass when he repossessed one of the vehicles by entering the applicants’ land. Secondly it is contended that he converted the DCN cheque.

Before turning to these two claims of alleged misconduct I should deal with the submission made by Mr Rosenblatt that the liquidator should have asked the Court for directions under s 479(3) of the Corporations Act before repossessing the vehicles. It was submitted that his failure to do so was both improper conduct and renders him unfit (tr 106). The applicants accepted that the substantiation material that was forwarded to the liquidator in respect of the transfer of the vehicle registrations was “open to question” (tr 98). However it was submitted that the liquidator failed to ask the questions (tr 98). I do not accept that this submission is justified. The liquidator wrote to the applicants seeking full explanations in respect of the motor vehicle transactions, closure of the business and what had happened to the assets. The response was that the liquidator should ask Mr Bruzzano. The liquidator’s evidence was that Mr Bruzzano (in discussions with Mr Burke) maintained that T&T had ceased trading and that it had no assets (tr 84). There was material of which the liquidator was possessed to suggest that this claim could not be sustained in the circumstances of the receipt of the DCN cheque and the payment of $110,000 into (and out of) T&T’s account on 11 May 2015. The liquidator formed the view that the change in the name of the registered operators of the vehicles from T&T to Aust on 25 May 2015 was “a sham”.

Although it was suggested to the liquidator in cross-examination that he repossessed the vehicles so that he would be able to have his fees paid, that was denied. I do not accept that the liquidator’s actions were motivated in this regard. On reflection, a better course might have been for notice to be given to Aust that the liquidator intended to repossess the vehicles. In any event the liquidator reached a settlement in a prompt fashion (referred to below) and I do not regard his failure to seek directions as cause shown for his removal. I should now turn to the two aspects (alleged trespass and conversion) focused upon by Mr Rosenblatt.

The only evidence that one of the motor vehicles may have been on the applicants’ property was a portion of Tam’s affidavit that the Ford was in the “driveway” of the relevant address. The liquidator was only asked whether the vehicle was “in the driveway”, to which he responded that he did not know (tr 81-82). That is where the evidence was left. There was no cross-examination as to the location of the driveway and/or the particular location of the vehicle on the driveway. It was not suggested to the liquidator in cross-examination that he had entered the applicants’ property or caused others to enter the applicants’ property without authority or consent. There was no cross-examination of Mr Burke as to whether he had any knowledge of the specific location of the driveway or the Ford when it was repossessed.

Mr Rosenblatt relied upon the following portion of Rowland J’s judgment in Camilla Holdings Pty Limited v International Task Pty Limited (in liquidation) (1987) 5 ACLC 972 at 974:

In final submissions the applicants’ claim in this regard was tempered. Mr Rosenblatt returned to this authority and said (tr 129):

After referring to Tam’s evidence, Mr Rosenblatt said (tr 129):

First, the liquidator in the Camilla case was not removed. There was an injunction preventing the exercise of rights over the particular goods the subject of the evidence. Secondly, the exact whereabouts of the vehicle at the Moorebank address (whether the “driveway” was within the property or not) was not the subject of any evidence.

The liquidator was met with what appeared to be a removal of assets (the $110,000 and the eleven motor vehicles) from T&T only days and weeks before his appointment and after the applicants were aware of the application for winding up. He was also met with a claim by the applicants that T&T had ceased trading 11 months prior to his appointment, yet funds were still being received by T&T. The Journal List provided to the liquidator by the accountant (in respect of a company whose books are in disarray and incomplete) suggested a transaction in respect of motor vehicles on 31 March 2015 in contrast to a suggestion in the O’Mara Appraisal Report obtained on 25 May 2015 that the relevant date was 22 May 2015.

The details of what actually occurred when the motor vehicles were repossessed were left unexplored in the evidence. I am not satisfied that the applicants have established that the liquidator committed a trespass. Their claim in this regard fails.

Even on the assumption that the liquidator may have been mistaken in respect of his entitlement to repossess the vehicles, he reached what I regard as a sensible arrangement in respect of their return pending further investigation. The applicants suggested that the only reason such an outcome was reached was because of the views expressed by Brereton J. Even if that were so, I do not see this as something that should be held against the liquidator.

The second basis upon which the applicants seek to have the liquidator removed is the alleged conversion of the DCN cheque. The chronology of the events relating to this aspect of the matter is set out earlier. Clearly the liquidator was justified in banking the cheque into T&T’s account. The cheque was made payable to T&T. Once the draft affidavit of the director of DCN was provided to Swaab, a prompt agreement was reached to provide the proceeds to Aust without prejudice to the liquidator’s future rights.

Notwithstanding the applicants’ claims in respect of the DCN cheque, they accepted that the information was provided to the liquidator over time and it “was a bit of an evolving matter” (tr 102). The applicants submitted that it was the liquidator’s responsibility to make an enquiry of DCN to satisfy himself that the proceeds of the cheque were appropriately paid into T&T’s account. I disagree with this submission. The liquidator had received a cheque payable to T&T and banked it accordingly as he was entitled to do. It was for the applicants to provide the liquidator with the information in support of their claim that the cheque was written in error, if that is what actually happened.

The applicants’ claim that the liquidator has converted the DCN cheque must fail.

In their final oral submissions the applicants propounded a grab bag of complaints including that the liquidator was unfit because of his “laziness” in not speaking to the accountant or the directors. I have already dealt with this suggestion in the applicants’ other submissions. I do not accept that the liquidator failed to communicate with the accountant or the applicants. There was no proper basis for this claim. There was also a claim that the liquidator had wasted costs in embroiling T&T in the earlier litigation. T&T was the defendant in the litigation which was settled promptly on the basis, inter alia, that each party pay their own costs. I am not satisfied that this complaint has been made out.

I am not satisfied that cause has been shown for the removal of the liquidator.

The Amended Interlocutory Process is dismissed. If the parties are unable to agree on a costs order, they may file written submissions by no later than 13 November 2015 and I will deal with the issue on the papers.