In the matter of Sirrah Pty Ltd (in liq)

1. [1]

   By Amended Originating Process filed, by leave, at the hearing on 21 June 2024, the Plaintiff, Mr Hayes in his capacity as liquidator of Sirrah Pty Ltd (in liq) (“Sirrah”) seeks an order under s 488(2) of the Corporations Act 2001 (Cth) (“Act”) that he be granted special leave to distribute a surplus in the winding up of Sirrah to its contributories, other than the First Defendant, Harris Health Care Pty Ltd (recs and mgrs apptd) (“HHC”) and the Third Defendant, the Bankrupt Estate of Mr William Harris, and a declaration and direction as to the basis on which that distribution is to be made. That application raises a question whether Mr Hayes may properly rely on the “rule” in Cherry v Boultbee 4 Myl & Cr 442; (1839) 41 ER 171 (“Cherry v Boultbee”) in distributing that surplus. Mr Hayes also seeks an order, under s 480(d) of the Act that he should be released as liquidator of Sirrah and that ASIC deregister Sirrah, although he accepts that order should not take effect until after the distribution is complete.

2. [2]

   The relief sought by Mr Hayes, at least in respect of the basis on which the surplus is to be distributed, is opposed by HHC, by Mr Calabretta, who is the receiver and manager appointed to HHC by a firm of solicitors, Yates Beaggi Lawyers (“Yates Beaggi”). The trustee for the Bankrupt Estate of Mr William Harris filed a submitting appearance. Although Yates Beaggi had filed a notice of appearance for both HHC and the Fourth Defendant, Ms Harris, the latter did not appear at the hearing.

Affidavit and other evidence, background facts and chronology

1. [3]

   Mr Hayes reads his affidavit dated 7 December 2023 (“Hayes 1”). He there refers to his appointment as provisional liquidator of Sirrah and subsequently as liquidator. He leads evidence as to the shareholders of Sirrah, and I note that HHC owns about 52.5% of shares in Sirrah; the Second Defendant, the Executors of the Estate of the late Aileen Harris (“Estate”) owns in excess of 47.2% of shares in Sirrah, and Mr William Harris and Ms Harris each own 1 share in Sirrah. He also sets out the history of proceedings brought by the Estate as a derivative action on behalf of Sirrah, against, relevantly, Mr William Harris, HHC and Ms Harris (“Primary Proceedings”), which were determined by my judgment in Re Sirrah Pty Ltd (in liq) (2021) 152 ACSR 212; [2021] NSWSC 413 (“Primary Judgment”), in which judgment was entered against Mr Harris and HHC, jointly and severally, in an amount exceeding $15.6 million, plus interest, and a further judgment was entered only against Mr Harris. An appeal from that decision was dismissed by the Court of Appeal on 17 December 2021, by its judgment in Harris v Harris [2021] NSWCA 329. Mr Hayes also refers to later, separate proceedings, in Re Sirrah Pty Ltd (in liq) (No 2) [2021] NSWSC 1326, where an order for costs was made against Sirrah in favour of the Defendants on 18 October 2021, which have now been assessed and paid. Other costs payable to Yates Beaggi were the subject of a gross sum costs order made by consent and have also been paid. Mr Hayes also outlines interim distributions which have been made to the Estate, and on one occasion to Ms Harris, pursuant to several judgments of the Court.

2. [4]

   Mr Hayes also refers to the steps he has taken in the liquidation, including the admission and adjudication of creditors proofs of debt and to the basis on which he proposes to distribute the surplus in Sirrah in large part to the Executors and in a smaller amount to Ms Harris, following the methodology applied by Gleeson JA in Re Hawden Property Group Pty Ltd (in liq) (2018) 125 ACSR 355; [2018] NSWSC 481 (“Hawden”) at [52]-[53], and he updated that calculation in a later affidavit. There is no dispute as to the correctness of Mr Hayes’ calculation, adopting that methodology, although HHC (by its receiver) contests the application of that methodology. Mr Hayes also addresses the matters relevant to a release and deregistration of Sirrah under r 7.5(3) of the Supreme Court (Corporations) Rules 1999 (NSW) (“Corporations Rules”). There is no contest that the matters necessary for such a release and consequential deregistration of Sirrah were satisfied, although Mr Hayes rightly accepts that that release and deregistration should be deferred until the distribution of the surplus is completed.

3. [5]

   By a second affidavit dated 7 May 2024 (“Hayes 2”), Mr Hayes updates the position in respect of the adverse costs order to which I referred above and refers to orders made by consent which quantified the amount of the costs payable to Yates Beaggi and to the payment of those costs. Mr Hayes also provides a revised calculation of the surplus available for distribution in the winding up and the basis on which that distribution would be made, consistent with the methodology set out in Hawden. As I noted above, there is no contest as to the correctness of that calculation if a distribution is properly made on that basis.

4. [6]

   By a third affidavit dated 18 June 2024 (“Hayes 3”), Mr Hayes leads evidence of service of the proceedings, including upon the Australian Securities and Investments Commission (“ASIC”) which has not opposed the orders sought in the proceedings.

5. [7]

   By his affidavit dated 14 June 2023, in opposition to the relief sought by Mr Hayes, Mr Calabretta referred to his appointment, on 16 June 2021, by Yates Beaggi as receiver and manager of the property of HHC and Mr Harris and exhibited a legal services agreement and costs disclosure (“LSA”) dated 2 June 2020 between Yates Beaggi, HHC, Mr Harris and Ms Harris which I will address below. Mr Calabretta there contended (in evidence read with a limiting order under s 136 of the Evidence Act 1995 (NSW) (“Evidence Act”) as submission) that the LSA was notified to Sirrah as early as 30 April 2021 and referred to an affidavit of Mr Amirbeaggi dated 30 April 2021 in the Primary Proceedings which exhibited the LSA. Mr Calabretta also refers to the registration of a financing statement in respect of HHC on the Personal Properties Securities Register (“PPSR”) on 26 May 2021.

6. [8]

   Mr Calabretta also tendered several documents, some of which relate to a contention that Mr Hayes had elected to pursue a proof of debt in the liquidation of HHC rather than rely on the “rule” in Cherry v Boultbee in distributing the surplus in Sirrah. Mr Calabretta tendered a proof of debt dated 20 April 2022 lodged by Sirrah in the bankruptcy of Mr Harris, although he ultimately did not rely on that proof of debt in submissions and also tendered other correspondence which I address in the chronology set out below.

7. [9]

   In reply, Mr Hayes relied on his affidavit dated 20 June 2024. He annexed a copy of Sirrah’s articles of association which provided, in clause 7, that:

8. [10]

   Mr Hayes also addressed the steps which he had taken to seek to recover the judgment debts owing by HHC and Mr William Harris, without success, and the circumstances in which he had lodged a proof of debt. Mr Hayes’ evidence, admitted with a limiting order under s 136 of the Evidence Act as to his state of mind, was that he lodged that proof of debt only for a vote on the remuneration and internal disbursement resolution in respect of the liquidation of HHC. Mr Hayes’ evidence was also that he then understood it was never likely that there would be any distribution in the HHC liquidation and, in evidence admitted as limited to his state of mind only, that:

9. [11]

   I now turn to the background facts and a chronology, and I here reach conclusions as to contested matters to the extent necessary to do so. It is common ground that the Estate holds 350 shares in Sirrah, comprising 47.2334% of its shares; HHC holds 389 shares, comprising 52.4966%, and Mr William Harris and Ms Michelle Harris each hold one share in Sirrah.

10. [12]

    Mr Hayes was appointed provisional liquidator of Sirrah on 14 October 2019 (Hayes 1, [5]; Ex AJH-1, Tab 1).

11. [13]

    On 2 June 2020, Mr Amirbeaggi, of Yates Beaggi issued to HHC, Mr Harris and Ms Harris the LSA (Ex D1, Tab 2), which was executed by them by 12 June 2020. The LSA included a clause that provided:

12. [14]

    Mr Calabretta contends that, by 6 April 2021, a debt in the sum of $468,566.15 owed to Yates Beaggi remained unpaid and that the proposition that that debt was due and payable was accepted by Williams J in Re Sirrah Pty Limited (in liq) [2021] NSWSC 1274 at [15]. There is no evidence of that matter in this proceeding, but I will assume, without deciding, that a debt remains owing to Yates Beaggi in an unknown amount.

13. [15]

    On 23 April 2021, I delivered the Primary Judgment. Importantly, I there noted (at [11]) that:

14. [16]

    I there held (at Primary Judgment [107]) that Mr William Harris’ payment of continuing management fees to HHC amounted to a breach of fiduciary duty; that (at [129]) loans that Mr Harris caused Sirrah to make to him and to HHC breached the no conflict rule and also amounted to a breach of fiduciary duty; and (at [130]) that:

15. [17]

    I also found (at [137]) that the “reimbursement” of expenses to HHC breached the no conflict rule and amounted to a breach of fiduciary duty by Mr Harris. Importantly, I then held (at [155]) of the Primary Judgment that:

16. [18]

    I also there set out (at [173]) that the orders that I propose to make, subject to an opportunity for further submissions, included an order for judgment for Sirrah against, inter alia, HHC in the sum of $15,674,735.82 and interest. I directed (at [174]) the parties to make any further submissions within 7 days as to the form of orders and as to costs.

17. [19]

    Mr Calabretta contends that:

18. [20]

    This submission refers to an email dated 30 April 2021 sent to my Associate and copied to several other persons including the solicitor acting for the Estate and the solicitor acting for Sirrah. That email attached submissions of Mr Harris, HHC and Ms Harris made pursuant to the direction in paragraph 174 of the Primary Judgment, to which I referred above, and an affidavit dated 30 April 2021 of Mr Amirbeaggi. That affidavit in turn referred to the issue of the LSA to HHC, Mr Harris and Ms Harris and to the return of the LSA executed by them, and annexed the executed LSA but did not refer to the provision relating to security which I have quoted above. There is a real question (which it is not necessary to decide) whether (as Mr Calabretta contends) an email sent to a Judge’s Associate and copied to Sirrah’s solicitors for the purpose of submissions as to orders and costs, which did not specifically refer to the security provision, and an affidavit, which also did not refer to the security provision and was then possibly subject to the rule in Harman v Home Department State Secretary [1983] 1 AC 280; [1982] 1 All ER 532; [1982] 2 WLR 338, could amount to notice to Sirrah or Mr Hayes of an assignment (to which it also did not refer) of any rights of HHC to Yates Beaggi.

19. [21]

    On 7 May 2021, I delivered a further judgment in Re Sirrah Pty Ltd (in prov liq) [2021] NSWSC 492 and ordered, inter alia, that Sirrah be wound up on a final basis and that Mr Hayes be appointed as its liquidator; money judgments were entered against HHC and Mr William Harris, jointly and severally, including interest, for $17,098,473.20; and a separate judgment was entered against Mr William Harris, including interest, for $1,124,379.82. As I noted above, an appeal against components of those judgment debts was unsuccessful. Mr Calabretta accepts that, on 7 May 2021, a debt accrued to Sirrah as against Mr Harris and HHC by reason of orders requiring them jointly and severally pay to Sirrah the monetary sums therein. That proposition is true but incomplete, where the judgment debt against HHC was larger than, but included the amount in excess of $11 million that HHC had admitted it owed Sirrah prior to the commencement of the proceedings.

20. [22]

    The charge was later registered on the PPSR on 25 May 2021, but nothing turns on that where it is common ground that the judgment had arisen prior to that date. On 16 June 2021, Mr Calabretta was appointed by Yates Beaggi as receiver and manager of the property of HHC and Mr Harris. Mr Harris was subsequently made bankrupt on 3 March 2022.

21. [23]

    By letter dated 9 June 2022 from Mr Hayes’ solicitors to the shareholders or their legal representatives (Ex D1, Tab 11), Mr Hayes indicated his intent to seek leave to pay surplus funds in the liquidation of Sirrah to the Estate and Ms Harris, consistent with the application now brought, and stated that:

22. [24]

    By email dated 22 August 2022 from the solicitor then acting for Mr Calabretta to Mr Hayes’ solicitors (Ex D1, Tab 12), they advised that:

23. [25]

    HHC was wound up on 1 September 2022. By a notice of liquidation and initial information for creditors dated 30 September 2022 (Hayes 20.6.24, Annexure “D”) the liquidator of HHC (“HHC liquidator”) sought approval for his remuneration and disbursements to be given without a meeting and also advised creditors that:

24. [26]

    On 5 October 2022, apparently in response to that notice, Mr Hayes lodged a proof of debt in the liquidation of HHC (Ex D1, Tab 13) for the full amount of the judgment debt, which identified particulars of the debt as being the Court’s judgment in an amount exceeding $17 million on 7 May 2021, and stated in paragraph 2 (which provided, correctly, at that date, irrespective of any later application of the rule in Cherry v Boultbee) that:

25. [27]

    On 7 December 2023, Mr Hayes reported (Ex AJH1, CB 233) to creditors of Sirrah, inter alia, as to the proof of debt (in the sense noted above) lodged in HHC’s winding up and the administration of that insolvent estate. That report noted that the HHC liquidator had advised that all of HHC’s assets were secured by a registered security interest (presumably, to Yates Beaggi) and that it was unlikely that there would be any recoveries in the liquidation of HHC.

26. [28]

    By an email dated 18 June 2024, the solicitors for Mr Hayes advised the HHC liquidator that:

27. [29]

    By email also dated 19 June 2024, the HHC liquidator responded referring to his request (in September 2022) that Mr Hayes complete a proof of debt form in order to fix his remuneration by a postal ballot vote and observed that:

28. [30]

    On 19 June 2024, Mr Amirbeaggi, who did not there indicate that he was then acting for Mr Calabretta and appears to have been acting on his own or his firm’s behalf, emailed the HHC liquidator and asked:

29. [31]

    By email dated 19 June 2024, the HHC liquidator advised Mr Amirbeaggi, that the proof of debt had been withdrawn on 18 June 2024. That advice again necessarily confirmed the HHC liquidator’s consent to that withdrawal, since that proof of debt could not have been withdrawn without that consent.

30. [32]

    By a further email dated 19 June 2024, Mr Amirbeaggi then asked the HHC liquidator:

31. [33]

    The HHC liquidator fairly responded by email also dated 19 June 2024, that:

32. [34]

    Mr Amirbeaggi then emailed the HHC liquidator, in a manner which could only be described as threatening, that:

33. [35]

    The debts due by Mr William Harris and HHC to Sirrah have not been paid (Hayes 1, [23]; Hayes 2, [12]).

Two procedural matters

1. [36]

   I should briefly address two procedural matters in respect of the proceedings. First, by consent, I made an order under s 471B of the Act granting leave, nunc pro tunc and to the extent necessary, to the liquidator to begin and proceed with the proceedings against HHC.

2. [37]

   Second, I am satisfied that no leave is required for Mr Hayes to proceed against the Bankrupt Estate of William Francis Harris, as the Third Defendant. Mr Katekar, with whom Mr Anderson appears for Mr Hayes, points out that s 58(3) of the Bankruptcy Act 1966 (Cth) (“Bankruptcy Act”) provides:

3. [38]

   Mr Katekar submits and I accept that the moratorium in s 58(3) of the Bankruptcy Act is not applicable here. First, Sirrah and not Mr Hayes is “the creditor” with a claim against Mr Harris within the meaning of s 58(3) of the Bankruptcy Act, and these proceedings are brought by Mr Hayes and not Sirrah. That proposition follows from the language of the section, although it is consistent with a tentative observation in Penson v Palmer [2018] FCA 1202 at [18]. Second, Mr Hayes does not here seek to enforce a remedy against Mr Harris, and the proceedings are not in respect of a provable debt of Mr Harris, but are directed to the amount to be distributed to shareholders in HHC, although I recognise that Mr Harris is a shareholder in HHC. I note, for completeness, that Mr Pascoe, the trustee of the Bankrupt Estate of Mr Harris, has filed a submitting appearance, but that would not substitute for the grant of leave, which could only be given by the Federal Court of Australia, if leave was required.

Special leave under s 488(2) of the Act

1. [39]

   By paragraph 1 of the Amended Originating Process, Mr Hayes seeks special leave to distribute the surplus in the liquidation of Sirrah, although I will address a contest as to the amounts to be distributed below. Pursuant to section 488(2) of the Act, a liquidator may only distribute a surplus in the winding up of a company with the special leave of the Court. I summarised the principles subject to such an application in Re Hillsea Pty Ltd [2021] NSWSC 1593 at [4] as follows:

2. [40]

   As Mr Katekar points out, r 7.9(1) of the Corporations Rules requires a supporting affidavit stating how the liquidator intends to distribute the surplus, including the name and address of each person to whom the liquidator intends to distribute any part of the surplus. Mr Hayes’ first and second affidavits satisfy that requirement. I am satisfied, on the basis of those affidavits, that creditors’ claims have been paid in full. I am also satisfied, subject to the disputed issues of principal that I address below, that the proposed distribution observes the correct relativities among contributories. Mr Hayes there explains the methodology that he has used to arrive at the proposed distribution to shareholders (Hayes 1, [28]ff; Hayes 2, [8]ff) which, as I noted above, adopts the methodology addressed by Gleeson JA in Hawden, and that calculation also brings to account the several interim distributions which were made during the course of the provisional liquidation and liquidation (Hayes 1, [17], [29(f)]). I will, subject to the resolution of these issues of principle below, grant leave to distribute the surplus.

Mr Hayes’ reliance on and Mr Calabretta’s contentions as to the rule in Cherry v Boultbee

1. [41]

   Mr Hayes seeks a declaration that he is entitled to apply the rule in Cherry v Boultbee in distributing the surplus in Sirrah and a direction that he would be justified in proceeding on a specified basis in the application of that rule. That was the major issue in dispute in the proceedings, although it was the second issue addressed by Mr Calabretta in opposition to that distribution.

2. [42]

   I first refer to the applicable case law. Mr Katekar refers to Otis Elevator Co Pty Ltd v Guide Rails Pty Ltd (in liq) & Ors (2004) 49 ACSR 531; [2004] NSWSC 383 (“Otis Elevator”) at [33], [39]-[41] and [44]-[45], where Palmer J summarised the “rule” in Cherry v Boultbee as follows:

3. [43]

   Palmer J also referred to Re Peruvian Railway Construction Company Ltd [1915] 2 Ch 144 and observed that:

4. [44]

   His Honour then observed at [44]-[45] that:

5. [45]

   As Mr Katekar pointed out, that conclusion followed where the liquidation of Wood Parsons, the shareholder, occurred before liquidation of Guide Rails, the company which would pay the distribution.

6. [46]

   In Re Anglican Development Fund Diocese of Bathurst (recs and mgrs apptd) [2015] NSWSC 440 (“Anglican Development Fund”) at [21]ff, Brereton J undertook a detailed review of the rule in Cherry v Boultbee and the circumstances in which it would apply, where statutory set-off under s 553C of the Act was not available, and held (at [39]) that the rule would there apply unless the relevant debts were amenable to set-off.

7. [47]

   Mr Katekar also points to Hawden, where Gleeson JA observed (at [45]-[46]) that:

8. [48]

   His Honour then observed (at [51]-[52]) that:

9. [49]

   I referred to Anglican Development Fund and Hawden in Re Primespace Property Investment Ltd (in liq) [2018] NSWSC 919 (“Primespace”) at [27], where I observed that:

10. [50]

    Mr Katekar also refers to Re D & D Corak Investments Pty Limited (in liq) [2020] NSWSC 1197 (“D & D Corak”), where Rees J considered an application by the liquidator of D & D Corak Investments Pty Ltd for special leave to distribute a surplus to contributories, in circumstances where one shareholder, a bankrupt, was also a debtor of that company. As Mr Katekar points out, that company was wound up in December 2017, and the shareholder was subsequently made bankrupt in October 2018. Rees J there referred to Gleeson JA’s summary of the applicable principles in Hawden and summarised the applicable principles as follows (at [18]ff):

11. [51]

    As Mr Katekar points out, in D & D Corak, the liquidator proposed a regime by which a series of three distributions would be made, with the first and second distributions seeing funds notionally applied to the debt due by the bankrupt. In approving that course, Rees J observed that:

12. [52]

    In Re Force Corp Pty Ltd (in liq) (2020) 149 ACSR 451; [2020] NSWSC 1842, Gleeson J in turn referred to Anglican Development Fund, Primespace and Hawden and observed (at [116]) that:

13. [53]

    In HBSY Pty Ltd v Lewis (2022) 108 NSWLR 558; [2022] NSWSC 841 at [55]ff, Kunc J also addressed the application of the rule in the context of the Bankruptcy Act.

14. [54]

    Pausing here, it can hardly be said that there is any novelty, given the longevity of the rule in Cherry v Boultbee and the recent Australia case law, in the application of that rule where a statutory set-off is not available in a winding up. Nonetheless, turning now to the submissions of Mr Fernon, with whom Ms Nolan appears for Mr Calabretta, it initially seemed that Mr Calabretta contended that that rule was inconsistent with Pt 5.4 of the Act and was not part of Australian law. The breadth of that initial position was plain from Mr Fernon’s summary of it, as follows:

15. [55]

    Mr Fernon there referred to appellate authority, including decisions of the High Court, as to the importance of the principle of coherence in the law and, unsurprisingly, Mr Katekar did not contest the importance of that matter. He initially submitted that:

16. [56]

    He also initially submitted that Pt 5.6 of the Act “codifies exhaustively the legal procedures for winding up a company in Australia”, apparently to the exclusion of the general law; that Pt 5.6 of the Act “does not purport to adopt the common law relating to set-off and give it the force of a Commonwealth statute”; and that:

17. [57]

    Mr Fernon also initially relied on Fused Electrics Pty Ltd (in liq) v Donald [1995] 2 Qd R 7 (“Fused”) which he contended “implicitly recognises the principle of coherence in Australian law”. By contrast, he contended that Gleeson JA in Hawden “did not consider the issue through the lens of the principle of coherence.”

18. [58]

    Mr Katekar took issue with these submissions, although I can address his response briefly where Mr Fernon rightly abandoned these contentions, in any general form, in oral submissions. Mr Katekar submitted, and I accept, that Mr Fernon’s submissions had largely treated the rule in Cherry v Boultbee as a rule of set-off, which it is not, so as to identify a suggested lack of coherence with the statutory set-off provision in Pt 5.4 of the Act. Mr Katekar also rightly pointed out that the suggested lack of coherence depended on the premise that Pt 5.6 of the Act “codifies exhaustively the legal procedures for winding up a company”; that the rule in Cherry v Boultbee is “directly contrary to … [that] exhaustive scheme”; and that there is no inconsistency where the rule in Cherry v Boultbee operates in specific circumstances and in addition to, but not inconsistently with, Pt 5.6 of the Act.

19. [59]

    I should briefly indicate why I would have rejected Mr Calabretta’s initial and wider submissions had Mr Fernon not abandoned them. First, there is no lack of coherence between the rule in Cherry v Boultbee and the provisions for proof of debt now contained in Pt 5.4 of the Act, where they have operated in parallel for much of the period that insolvency legislation has applied to companies; in this area, as in many areas, the corporations legislation assumes the operation of the general law, including the rule in Cherry v Boultbee; and the Courts have repeatedly applied the rule in Cherry v Boultbee and the legislature has repeatedly amended the corporations legislation in the form in which it has existed since the mid nineteenth century without taking any step to exclude or override that principle. Second, Mr Calabretta’s contention that Pt 5.4 of the Act is a code was rejected by Gleeson JA in Hawden, and it seems to me that it is plainly not correct, where that Part could not operate without drawing on general law principles and does not need to address matters that were adequately addressed by the general law when it, and predecessor legislation, were enacted.

20. [60]

    Third, so far as Mr Calabretta initially sought to rely on the decision in Fused as recognising a question whether Pt 5.4 excluded the rule in Cherry v Boultbee, that case does not advance that suggestion for the reasons summarised by Gleeson J in Hawden at [47]ff as follows:

21. [61]

    Fourth, the rule in Cherry v Boultbee has been applied by English and Australian judges many times since that case was decided, and many times by Judges in this Court in recent years in analogous circumstances, including in the decisions to which I have referred above. Consistent decision making in respect of the national scheme of corporations legislation is a matter of great importance, and I should not depart from those decisions unless I consider that they are plainly wrong: Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 (dealing with decisions of intermediate appellate courts); Ming Tian Real Property Pty Ltd v SGS Platinum Pty Ltd (2020) 145 ACSR 329; [2020] NSWSC 212 at [38]. I am not satisfied that those decisions are plainly wrong, and they seem to me to be plainly right, and consistent with both equitable principle and the purposes underlying Pt 5.4 of the Act. For these reasons, I would not have accepted the contention that Mr Fernon abandoned, that the rule in Cherry v Boultbee was inconsistent with Pt 5.4 of the Act or undermined the coherence of Australian law.

22. [62]

    Mr Fernon instead put a narrower contention, that the application of the rule in Cherry v Boultbee would undermine coherence of the Australian law in the particular circumstances of this case. The narrower scope of that contention emerged in Mr Fernon’s oral submissions (T37-38) as follows:

23. [63]

    At this point, I sought clarification of the apparent difference in the scope of the submissions being put by Mr Fernon, in his opening written submissions and oral submissions, as follows:

24. [64]

    Mr Fernon further elaborated the narrower submission that he put, directed to the facts of this case, as follows (T40):

25. [65]

    It is not apparent to me that the application of a principle of general application in a particular case could properly be said to undermine the coherence of Australian law, although the different question whether that principle is applicable in that case will often arise. Putting that difficulty aside, the matters on which Mr Fernon relied for that proposition were, first, that Mr Hayes had proved for Sirrah’s debt in the liquidation of HHC, which relied on matters which he put in respect of a claim for election, which I address below. I do not accept that this matter gives rise to any incoherence arising from the application of the rule in Cherry v Boultbee to a distribution of the surplus in Sirrah, for the same reasons that I do not accept that an election is established below. I should add that, contrary to the factual basis of Mr Fernon’s submission, Mr Hayes’ proof of debt in HHC plainly had no impact on other creditors of HHC where it was directed to approval of the HHC liquidator’s remuneration, in less than the amount for which he was indemnified by Sirrah; it was withdrawn, as I will note below, before any adjudication of proofs of debt in HHC for distribution purposes; and it did not have any effect on any distribution that might in future be made by HHC to its creditors.

26. [66]

    Second, Mr Fernon relied on that fact that Sirrah had sought and obtained the order winding up HHC, and submitted that it would undermine the coherence of Pt 5.4 of the Act if the rule in Cherry v Boultbee were now applied in a distribution of Sirrah’s assets. I also do not accept that submission. As Mr Katekar points out, there is no apparent reason why the rule in Cherry v Boultbee should not apply in Sirrah’s winding up, simply because Sirrah sought a winding up order in respect of HHC, and sought to have the HHC liquidator investigate any recoveries that may be available in HHC. To the extent that Mr Fernon articulated any such reason, it appeared to repeat, in a weaker form, the wider proposition that the rule in Cherry v Boultbee was sometimes (or only in this case) inconsistent with the application of Pt 5.4 of the Act in respect of Sirrah or HHC. There is, in my view, no inconsistency in the liquidator of Sirrah applying the rule in Cherry v Boultbee in Sirrah’s winding up, and Sirrah’s previous application for the winding up of HHC does not commit it to prove in the winding up of HHC rather than rely on that principle. I therefore do not accept Mr Calabretta’s narrower contention that Mr Hayes proposed application of the rule in Cherry v Boultbee in distributing the surplus in Sirrah would undermine the coherence of Australian law in the particular circumstances of this case.

Mr Calabretta’s contention as to election

1. [67]

   Mr Calabretta also contended that it was not open to Mr Hayes to distribute the surplus in Sirrah in the manner contemplated by the rule in Cherry v Boultbee because, as Mr Fernon summarised the contention in his opening outline of submissions:

2. [68]

   Mr Fernon there elaborated this submission as follows:

3. [69]

   In oral submissions (T35-36), Mr Fernon put that:

4. [70]

   Mr Fernon there refers to Sargent, where Stephen J (with whom McTiernan J agreed) observed (at 642) that, for the doctrine of election to operate, “there must be both an element of knowledge on the part of the elector and words or conduct sufficient to amount to the making of an election as between the two inconsistent rights which he possesses”. His Honour pointed to a variance in the authorities as to the nature of the knowledge which the elector must possess, and then observed that:

5. [71]

   His Honour also noted that “full knowledge of the material facts” was required, although he also referred (at 617) to Elder’s Trustee and Executor Co Ltd v Commonwealth Homes and Investment Co Ltd (1941) 65 CLR 603; [1941] HCA 31 as authority that knowledge of circumstances that provide information from which the decisive fact giving rise to the legal right is “a clear if not a necessary inference” would be sufficient. After a comprehensive review of the authorities, his Honour noted that an elector is deemed to know the terms of his or her own contract and the rights it confers, or at least cannot take advantage of his or her own ignorance, and summarised the knowledge requirement (at 645) as follows:

6. [72]

   Mason J in turn observed (at 658) that:

7. [73]

   In Wiltrading (WA) Pty Ltd v Lumley General Insurance Ltd (2005) 30 WAR 290; [2005] WASCA 106 at [35]-[39], Steytler P in turn referred to the elements of election as requiring a choice between two inconsistent legal rights, that there be “knowledge on the part of the elector and words or conduct sufficient to amount to the making of the election”, with that knowledge being “full knowledge of the material facts”, on the basis that a party to a contract is taken to know of the rights that it confers; and that unequivocal conduct is required to establish an election that is not consciously made. I also summarised the applicable principles in Re Computer Room Solutions Pty Ltd [2021] NSWSC 845 at [62]ff on which I have drawn for the summary which appears above.

8. [74]

   In Porter v Computer Based Technology Pty Ltd [2004] NSWSC 476 at [68], Palmer J summarised the application of the concept of election, in the context of whether a secured creditor had surrendered its security, as follows:

9. [75]

   I recognise that a liquidator may lose the right to apply the rule in Cherry v Boultbee if they elect to pursue a different remedy, as a particular application of the wider principle of election. In Otis Elevator at [48], Palmer J observed that:

10. [76]

    That observation was cited, with apparent approval, by Kunc J in HBSY at [59], where his Honour also observed (at [145]ff) that:

11. [77]

    In response, Mr Katekar submits that Mr Hayes made no such election; if there was any election, it was not “irrevocable” and was, in any event, revoked; (any election) was not made with the knowledge of the potential legal consequences of proving in the estate of HHC; and, where the judgment against HHC arose “by reason of the conduct of a defaulting trustee”, the Court would be slow to find that a waiver or election arose.

12. [78]

    Mr Katekar submits that Mr Hayes proof of debt was prepared and submitted for voting purposes only and was not lodged for dividend purposes. He here refers, inter alia, to the proof of debt and its answer to a question applicable “[i]f the form is being used for the purpose of voting at a meeting”; the fact that proofs of debt have not been called for in the liquidation of HHC for dividend purposes and no proofs of debt have been admitted or rejected for dividend purposes; and, importantly, the regulatory structure which recognises, in r 75-130(4)(b) of the Insolvency Practice Rules (Corporations) 2016 (Cth), that a creditor is to be counted as a “responding creditor”, for the purposes of computing votes on passing a resolution of creditors without a meeting, if “the external administrator has admitted the proof of debt or claim, including the amount, for the purposes of voting”, as distinct from on an adjudication of the debt. I have accepted that the proof of debt was plainly lodged for voting purposes in addressing the chronology above, although I also recognise the proof of debt form potentially had wider application.

13. [79]

    Mr Katekar submits that there is no “election” between inconsistent rights by Mr Hayes applying the rule in Cherry v Boultbee on the one hand, and submitting a proof of debt for voting purposes in the liquidation of HHC on the other, and, as I will find below, there is no factual basis for Mr Fernon’s submission that “the administration of the insolvent estate” of HHC has proceeded “on the basis of” the alleged election. Mr Katekar submits that Mr Hayes did not appreciate there was a risk that the lodgement of the proof might lead to the risk of loss of the right to rely on the rule in Cherry v Boultbee. I accept that proposition, as matter of fact, but it is not necessary to determine whether that could deprive the conduct of the character of an election given the findings I reach on other grounds below. Mr Katekar also points out that, on learning of Mr Calabretta’s reliance on a claim of “election”, Mr Hayes took prompt steps to withdraw the proof of debt, and points out that the lodgement of the proof of debt was not irrevocable, where it could be (and I find below, was) withdrawn, with the HHC liquidator’s consent, pursuant to reg 5.6.56 of the Corporations Regulations. Finally, he submits that Mr William Harris was found in the Primary Judgment to have breached his duties owed to Sirrah, including in connection with substantial payments to HHC; the debt payable by HHC to Sirrah arises from breaches of duty by Mr William Harris to Sirrah in which HHC was involved; and he relies on Kunc J’s observation in HBSY at [146] that “…waiver should not be too strictly applied where the equitable principles operate, particularly with respect to defaulting trustees”. I will address the character of the liabilities owed by HHC to Sirrah further below in dealing with Mr Calabretta’s third contention.

14. [80]

    I am comfortably satisfied that Mr Calabretta has not established an election made by Mr Hayes which would prevent his application of the “rule” in Cherry v Boultbee in a distribution of the surplus in Sirrah. First, where the correspondence and proof of debt at the time of the suggested election were directed to approval of the HHC liquidator’s remuneration outside of a meeting, Mr Hayes did not then face any choice of inconsistent alternatives between the application of the rule in Cherry v Boultbee and proving for Sirrah’s debt in a winding up of HHC. That choice would not arise until the HHC liquidator called for proofs of debt for the purposes of an adjudication or proceeded with an adjudication. Second, Mr Hayes’ completion of the proof of debt at that time was neither a clear nor unequivocal election as to that matter, where the surrounding correspondence and the form of the proof made clear that it was directed to voting on the HHC liquidator’s remuneration. Third, contrary to Mr Fernon’s submission, the lodgement of that proof of debt had no impact on HHC’s assets, where HHC then (and now) had no available assets in a liquidation and the remuneration and disbursements claimed by the HHC liquidator were less than the amount by which he had been indemnified by Mr Hayes. Fourth, Mr Hayes has withdrawn that proof of debt, and I have found above that the HHC liquidator’s acknowledgement of that withdrawal necessarily involves consent to it, prior to any adjudication of that proof of debt by the HHC liquidator, the point at which any election would in fact arise. Mr Fernon submits that he has done so in response to Mr Calabretta’s claim for election, and I accept that is so, with the qualification that Mr Hayes rightly denies having made an election in the first place and has withdrawn the proof of debt for more abundant caution. The fact that that course is defensive in character, in the context of the proceedings, does not make it any less effective.

15. [81]

    For completeness, I should record that there was no proper basis for the threat made by Mr Amirbeaggi to the HHC liquidator, to which I referred in paragraph 35 above. The HHC liquidator acted fairly and properly in acknowledging the withdrawal of the proof of debt in the circumstances, and thereby consenting to its withdrawal, and was likely bound to take that course in accordance with the principle in Re Condon; Ex parte James (1874) LR 9 Ch App 609, which prevents a liquidator taking advantage of his or her strict legal rights so as to unjustly enrich a company in liquidation at the expense of an innocent party, although that principle has now likely been assumed within the Court’s wider supervisory jurisdiction over Court-appointed liquidators.

Mr Calabretta’s reliance on Stephens v Venables

1. [82]

   Third, Mr Calabretta relies on the decision in Stephens v Venables (1862) 30 Beav 625; (1862) 54 ER 1032 (“Stephens v Venables”) for the proposition that, as summarised in his opening outline of submissions:

2. [83]

   The first obvious error in this submission is that Mr Hayes personally, or as liquidator, has no claim under the judgment debt against HHC, and that claim is Sirrah’s claim. Little turns on that error. However, that submission contains a second and much more fundamental error, since it is plain and was common ground in the primary proceedings (in which Mr Fernon and Yates Beaggi acted for HHC and Mr Harris) that the large part of HHC’s debt to Sirrah already existed when the proceedings commenced. That was long before any notice of a charge was given to, or received by, Sirrah or Mr Hayes, so there is simply no factual basis for the proposition that I have placed in bold above. While the basis of this claim cannot be established, for that reason alone, and that should have been apparent to Mr Calabretta’s legal advisers, I will deal with it at somewhat greater length.

3. [84]

   Mr Fernon develops an elaborate submission, based on the false premise noted above, which commences with the proposition that the LSA evidenced an agreement for valuable consideration to charge the debt due by HHC to Yates Beaggi, thereby effecting an equitable assignment, and that future property, possibilities, and expectancies (such as the future right of HHC to a distribution from Sirrah) are assignable in equity by agreement for value, which takes effect as a present assignment when the debt or other subject-matter comes into existence. I will assume without deciding the correctness of that proposition. Mr Fernon then submits that the service of Mr Amirbeaggi’s affidavit dated 30 April 2021, which annexed the LSA but did not draw attention to the charge contained in it, place Mr Hayes on notice of the charge for the purposes of s 12 of the Conveyancing Act 1919 (NSW) on receipt of the notice. I have doubted the correctness of that proposition in dealing with the chronology above, although it is not necessary to express a final view. Mr Fernon contends, that, in consequence, that notice perfected the assignment of a proprietary interest in Sirrah’s fund to Yates Beaggi.

4. [85]

   Mr Fernon then submits that:

5. [86]

   Mr Fernon goes on to submit that, applying the principle in Stephens v Venables to the facts of this case:

6. [87]

   In reply, Mr Katekar responds that Mr Calabretta’s submission:

7. [88]

   Mr Katekar points out that, as I have also noted above, Mr Calabretta’s contention that “[HHC’s] debt to [Sirrah] accrued subsequent to notice of a charge on [HHC’s] proprietary interest in the fund being received by [Sirrah]” depends on an incorrect factual premise, where it was common ground in the Primary Proceedings that, as at 30 September 2019, HHC was indebted to Sirrah as at 30 September 2019 in the amount of $11,044,660.24 and HHC’s debt to Sirrah “accrued” prior to 30 April 2021, when it is now contended that notice of Yates Beaggi’s charge over HHC’s shares in Sirrah was given. Mr Katekar also contends that Sirrah’s articles require that it pay no attention to any purported equitable interest in its shares, which the Yates Beaggi charge asserts, although it will not be necessary to determine that matter. Mr Katekar takes issue with Mr Calabretta’s claim that notice of Yates Beaggi’s charge was given to Sirrah on 30 April 2021. He also submits that Mr Calabretta’s reliance on Stephen v Venables is inapt, and points to the very different facts of that case.

8. [89]

   In summary, Mr Katekar submits that:

9. [90]

   I also do not accept Mr Calabretta’s submission in this regard. First, despite the subtlety of the discussion of this matter in Derham, there is an open question whether the rule in Cherry v Boultbee is properly qualified by the decision in Stephens v Venables, which turned upon very different facts from the present facts, and my attention was not drawn to authority which has adopted the view expressed in Derham, even in the qualified way in which it is put. Second, the reference to Stephens v Venables in Derham is itself qualified in its application to a defaulting trustee. That qualification was noted by Kunc J in HBSY at [54], and his Honour observed that:

10. [91]

    I recognise that HHC is not a trustee of a trust. Nonetheless, it seems to me that the principles noted above arguably extend to a party who was the alter ego of a defaulting company director, so that its “right should still be impugned until such time as the default is remedied in toto”, adopting the language that I have quoted above. I found that HHC had that character in the Primary Judgment. If that exception applies, with reference to the case law to which Derham refers, HHC would be subject to a wider obligation to make good its default before sharing in any distribution from Sirrah, and the principle in Stephens v Venables has no application. It is not necessary to reach a final view as to that question, which is likely both novel and complex, since Mr Calabretta’s submission here is plainly based on a false factual premise, to which I now turn.

11. [92]

    Even if the principle in Stephens v Venables is capable of application here, the factual basis for its application is not established. The existence of large part of HHC’s debt to Sirrah was acknowledged in the Primary Proceedings, although the fact that it was created in breach of fiduciary duty was not; and that debt existed before Mr Amirbeaggi referred to the security taken by Yates Beaggi in the affidavit noted above or Yates Beaggi registered that security on the PPSR, although the orders that I made to give effect to the Primary Judgment were not made until after that occurred. The principle in Stephens v Venables has no application on the facts, even if it were otherwise capable of application, where HHC’s debt to Sirrah preceded Yates Beaggi’s security. Mr Calabretta’s reliance on the principle in Stephens v Venables also does not provide a basis not to apply then principle in Cherry v Boultbee in the distribution of the surplus in Sirrah.

12. [93]

    Where I have reached these conclusions, it is not necessary to address Mr Hayes’ reliance on cl 7 of Sirrah’s articles of association or the supplementary submissions which I permitted Mr Fernon to make in that regard. If Mr Hayes is correct in his reading of that clause, it provides a further reason to reach the conclusion that I have reached on other grounds; and, if he is not, that does not undermine that conclusion reached on other grounds.

Declaratory relief and directions and the implementation of Mr Hayes’ proposed distribution

1. [94]

   By orders 2 and 3 sought in the Amended Originating Process, Mr Hayes also seeks declaratory relief and a direction under s 90-15 of the Insolvency Practice Schedule (Corporations) in respect of the proposed distribution of the surplus. It is plain from the matters that I addressed above that Mr Hayes has rightly understood that the proposed distribution methodology in respect of the surplus is contentious, although not because it is wrong. The declaratory relief is comparable to the declaratory relief granted in Hawden and I am satisfied that it would be of utility, in providing protection to which Mr Hayes is properly entitled as a Court-appointed liquidator seeking to distribute a company’s assets in difficult circumstances. The direction sought is within the scope of s 90-15(1) of the Insolvency Practice Schedule (Corporations) which provides that the Court may make such orders as it thinks fit in relation to the external administration of a company including, without limitation, an order determining any question arising in the external administration of a company, and the application of that section (and its predecessor s 479 of the Act) as described in Re Octaviar Administration Pty Ltd (in liq) [2017] NSWSC 1556 at [7]ff and Re Broens Pty Ltd (in liq) [2018] NSWSC 1747 at [38]ff. Mr Katekar submits and I accept that the directions Mr Hayes seeks do not concern mere business or commercial decisions, are advantageous to the external administration of Sirrah and would facilitate the performance of Mr Hayes’ functions, in the difficult circumstances to which I referred above.

2. [95]

   I have addressed the contentious issues of principle as to Mr Hayes’ proposed distribution above. As Mr Katekar points out:

3. [96]

   There was no contest between the parties that the proposed distribution properly applied the rule in Cherry v Boultbee if, as I have found, that principle can properly be applied in the distribution of the surplus of HHC. I will therefore grant leave to distribute the surplus in accordance with order 1 and make the declaration sought in order 2 and give the direction sought by Mr Hayes in order 3 in the Amended Originating Process.

Dispensation with publication and other formal requirements

1. [97]

   By orders 4 and 5 sought in the Amended Originating Process, Mr Hayes seeks dispensation from two procedural requirements in respect of the distribution of the surplus, and there was also no contest as to this matter. First, reg 5.6.71(1) of the Corporations Regulations requires that an order of the Court authorising a liquidator to distribute surplus funds have annexed to it a schedule in accordance with Form 551, unless the Court otherwise directs. Mr Hayes seeks an order dispensing with that requirement and I am satisfied that order should be made where there are no matters for adjustment between the contributories, at least beyond the issues determined in this application: Hawden at [63].

2. [98]

   Second, rr 7.9(2) and (3) of the Corporations Rules requires that, at least 14 days before the date of the hearing of the special leave application, the liquidator must publish notice of the application in accordance with Form 15 in a daily newspaper circulating generally in the Australian state or territory where the company had its principal, or last known, place of business. I am satisfied that, as often occurs, that requirement should be dispensed with here because contributories and ASIC have been given notice of the application: Re Anne Lewis Pty Ltd [2016] NSWSC 1860 at [18]; Hawden at [60]. I will make orders 4 and 5 sought in the Amended Originating Process.

Release of Mr Hayes and deregistration of Sirrah

1. [99]

   Mr Hayes also seeks an order that he be released under s 480 of the Act although, as I noted above, he rightly does not seek to have it take effect until he has completed the distribution of the surplus in Sirrah and it may also need to be deferred while costs in these proceedings are addressed. There was also no contest as to this application.

2. [100]

   Section 480 of the Act permits a liquidator to apply for an order that he or she be released where he or she has realised all of the property of a company, or so much of it as can be realised without needlessly protracting the winding up, and where he or she has distributed a final dividend (if any) to creditors and adjusted the rights of contributories. The process for making such an application is set out in r 7.5 of the Corporations Rules. Mr Katekar refers to Re RR Impex Ltd (in liq) [2013] NSWSC 1667 at [3] where I observed, in relation to an order for release and deregistration:

3. [101]

   In Re Better Drums Pty Ltd (in liq) [2019] NSWSC 1262 at [6]-[7], I observed that:

4. [102]

   Mr Katekar submits and I accept that all of the matters set out in r 7.5(3) of the Corporations Rules have been addressed by Mr Hayes (Hayes 1, [34]); appropriate notice of the application has been given to contributories, including a summary of receipts and payments and statement of financial position, as required by r 7.5(6) of the Corporations Rules (Hayes 1, [36]; Hayes 3); notice of the application has been given to ASIC, as required by r 2.8(3) of the Corporations Rules (Hayes 3); and Mr Hayes makes the statements required by r 7.5(4) of the Corporations Rules (Hayes 1, [35]). On that basis, I am satisfied that it is appropriate to make orders under s 480 of the Act for the release of Mr Hayes and the deregistration of Sirrah, deferred as I have note above. I accept that it will likely be appropriate, as Mr Hayes proposes, to make that further order in Chambers upon the filing of an affidavit of Mr Hayes confirming that the necessary steps have been completed.

Orders

1. [103]

   For these reasons, I make orders and declarations and give directions in accordance with paragraphs 1-5 of the Amended Originating Process. I will make an order in accordance with paragraph 6 of the Amended Originating Process, likely in Chambers, when the distribution of the surplus and the recovery of costs in these proceedings is complete.

2. [104]

   Mr Hayes seeks an order that his costs be paid from Sirrah’s assets, and I accept that, subject to third party recoveries, that order should be made. My preliminary view is that Mr Calabretta’s conduct of these proceedings had the result that, contrary to the usual position, they had an adversarial character and were significantly lengthened and that he should be ordered to pay their costs.