- Unreported Judgment
SUPREME COURT OF QUEENSLAND
Re Williams Corporation Pty Ltd (in liq) & Hinchinbrook Resorts & Cruises Pty Ltd (in liq)  QSC 324
JOANNE EMILY DUNN AND GINETTE DAWN MULLER AS LIQUIDATORS OF WILLIAMS CORPORATION PTY LTD (IN LIQUIDATION)
JOANNE EMILY DUNN AND GINETTE DAWN MULLER AS LIQUIDATORS OF HINCHINBROOK RESORTS & CRUISES PTY LTD (IN LIQUIDATION)
DAVID ANDREW LANE AND MARLA LANE & ORS
SC No 7194 of 2015
Supreme Court at Brisbane
19 November 2015
21 August 2015
Philip McMurdo J
CORPORATIONS – WINDING UP – CONDUCT AND INCIDENTS OF WINDING UP – APPLICATIONS TO COURT FOR DIRECTIONS OR ADVICE – where the applicant liquidators of two companies sought the court’s approval for entry into conditional contracts for the sale of the company assets nunc pro tunc and a declaration that the applicants’ entry into the contracts was not invalid by reason of having entered into the agreements without the court’s prior approval – where the assets included land over which the first company had granted leases and subleases and the contract was conditional upon the property being unencumbered by those leases – where the contract between the purchaser and the second company for the sale of its assets was subject to and conditional upon the contemporaneous completion of the contract between the same purchaser and the first company – where the applicants sought a direction under s 511 of the Corporations Act 2001 (Cth) that they would be justified in disclaiming leases and subleases granted by one company over the land to be sold – where that direction was resisted by a group of lessees of that land – whether the liquidators required the leave of the court to disclaim the leases – where the leases of land granted by the company in liquidation were contracts which could be disclaimed under s 568(1) and which were expressly exempted from the requirement for leave of the court under s 568(1A) – s 568(1A) qualifies the liquidator’s power to disclaim property which is conferred by s 568(1) but not where the subject of the disclaimer is an unprofitable contract or a lease of land – where the liquidators did not require the leave of the court to disclaim the leases – where it was conducive to the expeditious and beneficial administration of the winding up that the contracts be approved under s 477(2B) of the Corporations Act
CORPORATIONS – WINDING UP – LIQUIDATORS – RIGHTS AND POWERS – IN VOLUNTARY WINDING UP – application by the liquidators of two companies seeking directions and approval of the court – where the liquidators sought the court’s approval for entry into conditional contracts for the sale of assets of the two companies nunc pro tunc and a declaration that the applicants’ entry into the contracts was not invalid for want of the court’s prior approval
Corporations Act 2001 (Cth), s 511, s 568, s 477(2B), s 506(1A)
Corporate Affairs Commission v ASC Timber Pty Ltd (1998) 29 ACSR 109, cited
Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd (1997) 42 NSWLR 209, considered
Forestview Nominees Pty Ltd (in liq), Re (2007) 164 FCR 237, cited
Stewart, Re NewTronics Pty Ltd  FCA 1375, applied
Willmott Growers Group Inc v Willmott Forests Ltd (receivers & managers appointed) (in liq) (2013) 251 CLR 592;  HCA 51, applied
G Beacham for the applicants
D de Jersey for the respondents
Thomson Geer for the applicants
Connolly Suthers for the respondents
- The applicants are the liquidators of Williams Corporation Pty Ltd (in liquidation) (“Williams Corporation”) and Hinchinbrook Resorts & Cruises Pty Ltd (in liquidation) (“HRC”). They have entered into conditional contracts for the sale of assets of the companies for which they seek the court’s approval. For the contract of sale by Williams Corporation, they also seek a direction that they would be justified in disclaiming leases granted by that company over the land to be sold. That direction is resisted by a group of lessees of that land.
- Williams Corporation developed waterfront land at Cardwell in North Queensland by what is described as the Port Hinchinbrook development. The development involved the construction of residential, commercial and retail buildings, various utilities and a marina. Part of the marina was constructed upon freehold land, of which the company is the registered owner, and some upon Crown land, of which the company holds a lease in perpetuity.
- Williams Corporation owns or leases all of the land which makes up the Port Hinchinbrook development, except for about 90 residential properties which were sold to third parties and which therefore are not affected by the proposed sale.
- Across a narrow channel from the development is Hinchinbrook Island, which is a listed National Park. HRC holds a special Crown lease over approximately eight hectares of the island, on which it constructed accommodation units and associated infrastructure. The developments by these two companies was undertaken by the late Keith Williams, who was their ultimate owner.
- The marina was constructed with a pier and a floating walkway from which floating “arms” extended. Williams Corporation had approval to construct about 250 berths but not all were built. It granted 60 berth leases over the freehold land (all but one of which were registered) and 32 subleases over the Crown land. The leases and subleases were granted from 1999 through 2008, with terms varying between 15 and 99 years but with the majority being for about 30 years.
- In February 2011, Cardwell was struck by Cyclone Yasi. Much of the Port Hinchinbrook development was destroyed. This included the marina which, apart from a handful of pylons, was sunk or swept out to sea.
- The leases and subleases which were granted by Williams Corporation over marina berths were in relevantly identical terms, and I will refer to them as the leases. They provided for the contingency of the destruction of a berth or the marina as follows:
That where the Berth or the Marina or a significant portion thereof is destroyed so as to be no longer fit for usage as contemplated by this Lease, whether by act of God, fire, storm, tempest, flood or otherwise, that the Lessor may give to the Lessee written notice to the effect that this Lease be determined on the expiry of seven (7) days from the giving of such notice, and in the event that this Lease is terminated in circumstances where the Lessor’s insurers make payment to the Lessor in terms of the policy of insurance with respect to such destruction and to the extent that those proceeds are adequate, (in the sole opinion of the Lessor) the Lessor shall pay to the Lessee an amount that the Lessor deems reasonable to compensate the Lessee for such early termination.”
- Williams Corporation did not elect to terminate any of the leases under that clause. It did receive a payment from an insurer from the destruction of the marina but that sum went to a secured creditor of the company.
- Each lease provided for two types of payments to be made by the lessee. The first was the Lease Fee, which was paid upon the grant of the lease. The second was the Maintenance Fee, which was an amount to be paid annually and reviewed by Williams Corporation from time to time after taking into consideration the cost of maintaining the marina. It thereby appears that the company’s profit was derived from the Lease Fee. Maintenance Fees under the leases were suspended after the cyclone by a letter to lessees dated 1 March 2011.
- The position of each lessee or sublessee is that it has paid a substantial capital sum for the grant of its lease which, in the present circumstances, appears to be worthless. That is because the marina has been destroyed and Williams Corporation has no funds to rebuild it or indeed for any other purpose. Nor does it appear that there is any prospect that any group of leaseholders could or would do so.
- In June 2013, the applicants were appointed voluntary administrators of each of these companies. On 15 July 2013, the creditors of each company resolved upon a deed of company arrangement and the applicants were appointed the deed administrators. On 28 August 2013, the creditors resolved to terminate the deed for Williams Corporation and placed it into liquidation under the applicants as liquidators. On 28 February 2014, the deed for HRC automatically terminated and that company returned to the control of its director. However, in the following month the applicants were again appointed voluntary administrators and on 14 May 2014, its creditors resolved to place it into liquidation, appointing the applicants as liquidators.
- The applicants gave consideration to whether the leases could and should be terminated under cl 24. They were concerned that some time had passed between the destruction of the marina and their appointment (in any capacity) to the company and were uncertain as to whether in the meantime the company had acted inconsistently with a right to terminate. To investigate that question, case by case, for each lease would have been time consuming and costly and the applicants were without any substantial funds to do so. They were also concerned that the outcome of those investigations might have been that some but not all of the leases could be terminated under cl 24, thereby complicating and adding to the cost of the adjudication of proofs of debt by the lessees. And the applicants were also concerned that an exercise of the right to terminate under cl 24 would be disputed in some cases, with the potential for litigation. That was a valid concern, especially from the fact that the insurance payment for the destruction of the marina had been paid prior to the applicants’ appointment and had gone directly to the company’s secured creditor.
- In about mid-May 2014, the applicants invited four estate agents to present proposals for the marketing of the assets of the companies. After receipt of those proposals, the applicants appointed one of those firms as their agent to market the assets and the marketing began in July 2014, seeking expressions of interest by the end of the following month. The agent placed advertisements in a number of local and national newspapers and on real estate websites. The marketing suggested that the assets of Williams Corporation could be purchased “in one line” or separately and with or without the special Crown lease held by HRC.
- When this marketing campaign closed, the applicants received two expressions of interest. One was for the purchase of the area of the former marina but unencumbered by the leases. The other was for the purchase of all of the assets of Williams Corporation but again free of the leases. After consideration of them, the applicants decided that neither was in the interests of the creditors of Williams Corporation.
- Subsequently, the agent was contacted by a representative of a group of potential purchasers, resulting in negotiations between October 2014 and March 2015. In February 2015, a conditional contract was signed for the sale of all assets owned by Williams Corporation to a company which is the investment vehicle for these purchasers. The contract requires that all leases be “validly terminated or brought to an end such that [the lessees and sublessees] will cease to have any interest or right affecting the title to the [property being sold]” and that “the Purchaser will acquire the Property free and clear of any claim, right or interest of a marina berth lessee”. The contract is subject to and conditional upon the Purchaser obtaining consent from all relevant authorities by 22 January 2016 (or such later date as may be agreed). It provides for a date for completion which is 90 days after the satisfaction or waiver of that special condition.
- On 1 April 2015, HRC and the same purchaser entered into a contract for the sale of the HRC assets. The contract is subject to and conditional upon the contemporaneous completion of the contract made by Williams Corporation.
- On 1 April 2015, a committee of inspection approved the making of the Williams Corporation contract, and on 20 May 2015, the creditors of HRC approved the making of its contract.
- The applicants filed an Originating Application seeking relevantly these orders:
- under s 511(2) of the Corporations Act, a direction that the applicants would be justified in disclaiming, without leave under s 568(1A) of the Act, the leases and subleases;
- alternatively, leave to make the disclaimer, pursuant to s 568(1A) together with a direction that the applicants would then be justified in disclaiming the leases;
- orders under s 477(2B) and s 506(1A) of the Act approving the entry into the two contracts, nunc pro tunc;
- a declaration pursuant to s 1322(4)(a) of the Act that the making of the contracts was not invalid by the applicants having done so without the prior approval of the court.
Notice of the application was given to every leaseholder.
- The respondents are 21 of the leaseholders. On their behalf, it is argued that leave to disclaim is required. But their primary submission is that the applicants have not demonstrated that they should have the directions which are sought, because the evidence is too general for the court to be satisfied that these contracts are in the interests of creditors and that they should be approved by the court. There was another foreshadowed argument, for which notices were sent to Attorneys-General under s 78B of the Judiciary Act 1903 (Cth). That argument was to have been that the disclaimer of the leases would result in the acquisition of property under a law of the Commonwealth without compensation. However, the argument was not advanced either in the outline of argument or the oral submissions for the leaseholders.
- Section 511 of the Corporations Act provides as follows:
“(1)The liquidator, or any contributory or creditor, may apply to the Court:
(a)to determine any question arising in the winding up of a company; or
(b)to exercise all or any of the powers that the Court might exercise if the company were being wound up by the Court.
(2)The Court, if satisfied that the determination of the question or the exercise of power will be just and beneficial, may accede wholly or partially to any such application on such terms and conditions as it thinks fit or may make such other order on the application as it thinks just.”
One of the powers which the court might exercise for a company being wound up by the court is the power, conferred by s 479(3), to give directions in relation to any particular matter arising under the winding up. It is common ground that the court’s power to give directions under s 511(2) corresponds with that power.
- The respondents argued that, in terms of s 511(2), the court could not be satisfied that the exercise of the power would be “just and beneficial”. For the meaning of the words “just and beneficial” in this context, the argument cites the judgment of Young J (as he then was) in Dean-Willcocks v Soluble Solution Hydroponics Pty Ltd and Anor. What is relevant to the present application is this passage from the judgment of Young J:
“Section 511(2) provides that the court is only to accede to the liquidator’s application if the determination of the question or exercise of the power ‘will be just and beneficial’. These words have been in companies legislation since the English Act of 1862. Although there have been some observations from judges from time to time as to what these words comprehend: see, eg, Re Serene Shoes Ltd  1 WLR 1087;  3 All ER 316 and Re Mascot Home Furnishers Pty Ltd; Re Spaceline Industries (Australia) Pty Ltd  VR 593 at 595, it seems to me that they plainly mean that the court has a discretion as to whether making an order under the section will be of advantage in the liquidation.”
- The leaseholders’ argument criticises the absence of evidence which identifies the creditors of Williams Corporation and shows how many of them are secured and unsecured. It is true that those particulars are not provided by the applicants in their evidence or submissions. However, there is evidence that they have undertaken calculations as to the possible returns to creditors of Williams Corporation on two alternative scenarios: the first being that the company completes its contract of sale and the second that it does not do so. Under the former, the applicants estimate that secured creditors and priority creditors would be paid in full and that unsecured creditors would be paid something between five cents in the dollar and nothing. Under the latter, the applicants say that no creditor, secured, priority or unsecured, would receive any dividend. That evidence must be understood in the context of other evidence for the applicants, that the company has no funds, there is no prospect for the rebuilding of the marina and the extensive marketing of the assets of the company has led to the present situation in which there is only one interested purchaser. As to a rebuilding of the marina, the applicants’ investigations lead them to expect that the cost would be more than $8 million and that such expenditure would not be commercially worthwhile if the leases remained on foot.
- In the face of that evidence from the liquidators, the leaseholders’ submission, that it is not possible to gauge whether it would be “just and beneficial” for the applicants to receive the direction which they seek, is unpersuasive. It is unnecessary for the court to know the number of secured and unsecured creditors. There is no reason to question the applicants’ evidence of the likely outcomes from those two scenarios. The leaseholders, through their counsel, did not seek to cross-examine the applicant who swore the affidavits in the applicants’ case.
- Next the leaseholders were critical of the fact that the evidence did not show the expected sale price of the assets, if still encumbered by the leases. It is said that valuations should have been obtained and produced. However, the applicants’ evidence shows that there was no interest expressed in the purchase of the assets encumbered by the leases. And that is unsurprising, given the evidence of the likely cost of reconstruction of the marina to give effect to the leases and the fact that the only payments which would then be made by the lessees would be those to cover the lessor’s costs of ongoing maintenance.
- The leaseholders were critical of the absence of evidence as to “the worth of the leases”, a submission which, at times, seemed to refer to the value of the leases to the lessees. That question might be relevant in the event that the leases were disclaimed by the applicants and an application to set aside the disclaimer was made which thereby required a comparison between the prejudice to the company’s creditors from setting aside the disclaimer and the prejudice to the lessees from the disclaimer. It might also be relevant, on an application for leave to disclaim under s 568(1A) (if leave is required) in the consideration of what was “just and equitable” under s 568(1B). But apart from those contexts, the prejudice to the leaseholders is not apparently relevant because the liquidators are to be directed according to the interests of all creditors of Williams Corporation.
- In any case, the position of the leaseholders is that their leases are effectively worthless. The structure of the marina no longer exists. There is no prospect of it being rebuilt. No leaseholder has a legal entitlement to do so, because each lease is for only an individual berth. So there is no prospect of the enjoyment of the right to exclusive possession which was the subject of the lease. Therefore there is no apparent prejudice to leaseholders from the disclaimer of the leases, except perhaps in the sense that if the applicants can be precluded from disclaiming the leases, they might be prepared to come to terms with the leaseholders for the payment of some compensation. But upon the evidence that is a matter of mere speculation.
- The submissions for the leaseholders referred to the fact that the company obtained approval to construct a marina for 250 berths, but only 92 were leased. The submission criticised what was said to be an absence of evidence of the consideration of another outcome, which is one under which the marina is rebuilt but to that greater capacity of 250 berths. The evidence of the cost of construction of the marina which was destroyed is, as already mentioned, that it would cost in excess of $8 million. It is true to say that there is no evidence of the cost of a larger marina and no specific analysis of the costs and benefits of that alternative. However, the short answer is that, as the evidence discloses, there is no prospect of a marina being rebuilt because of the lack of funds in the liquidation.
- The leaseholders also criticised the absence of evidence as to the impact upon “third parties with interests in the leaseholders’ interests as mortgagees, chargees or otherwise of those interests”. However, the impact upon any such third parties could be no greater than the value of the leaseholders’ interests which, as I have discussed, is effectively nothing.
- I come then to the question of whether the applicants require the leave of the court to disclaim the leases. Section 568 of the Corporations Act relevantly provides as follows:
“(1)Subject to this section, a liquidator of a company may at any time, on the company's behalf, by signed writing disclaim property of the company that consists of:
(a)land burdened with onerous covenants; or
(c)property that is unsaleable or is not readily saleable; or
(d)property that may give rise to a liability to pay money or some other onerous obligation; or
(e)property where it is reasonable to expect that the costs, charges and expenses that would be incurred in realising the property would exceed the proceeds of realising the property; or
whether or not:
(g)except in the case of a contract– the liquidator has tried to sell the property, has taken possession of it or exercised an act of ownership in relation to it; or
(h)in the case of a contract– the company or the liquidator has tried to assign, or has exercised rights in relation to, the contract or any property to which it relates.
(1A)A liquidator cannot disclaim a contract (other than an unprofitable contract or a lease of land) except with the leave of the Court.”
- In Willmott Growers Group Inc v Willmott Forests Ltd (receivers and managers appointed) (in liq), the High Court held that a lease entered into by a company as lessor was a “contract” within the meaning of s 568(1)(f) and could be disclaimed by the company under that section. French CJ, Hayne and Kiefel JJ said that:
“This conclusion follows both from the relevant attributes of a lease and from the reference in s 568(1A) to ‘a lease of land’, an expression which cannot be read as confined to leases in which the company is the tenant.”
Their Honours held that the word “property” in the chapeau to s 568(1) is “a compendious description of legal relationships amounting to ‘ownership’ of objects of property”, so that the word “contract” in para (f) of s 568(1) “must be understood as identifying, as the disclaimer property, the rights and duties which arise under the contract”. They continued:
“The rights and duties which a landlord and tenant have under a lease are bundles of rights and duties which together can be identified as species of property. The origins of those rights and duties lie in the contract which the landlord and tenant or their predecessors in title made. In every case, the rights and duties of the landlord and tenant, whether as an original party to the lease or as a successor in title, stem from the contract of lease and any later contract made in relation to that lease. When a company is the landlord, the rights and duties which that company has in respect of the lease are property described as ‘property of the company that consists of … a contract’.”
- Their Honours said that this conclusion as to the meaning of “contract” in s 568(1) in respect of leases, was “put beyond any doubt by the reference in s 568(1A) to ‘a contract … other than a lease of land’”. It was further held that upon a landlord’s disclaimer of a lease, the tenant’s estate or interest in the land was terminated because a landlord’s rights, interests and liabilities in respect of the lease could not be brought to an end without bringing to an end the correlative liabilities, interests and rights of the tenants.
- Those conclusions determined the questions which arose in that case. French CJ and Hayne and Kiefel JJ referred to certain questions which had not arisen and which had not been considered. Among those questions was “whether the liquidators required the leave of the Court before disclaiming the investors’ leases or, if they do require leave, what considerations would inform the decision to grant or refuse leave”. However, in my view, their Honours’ reasoning leads to the conclusion that a liquidator may disclaim a contract, constituted by the company’s lease of land, without the leave of the Court.
- The requirement for the court’s leave comes from s 568(1A). It qualifies the power to disclaim property which is conferred by s 568(1). It does not qualify that power where the subject of the disclaimer is an unprofitable contract or a lease of land. French CJ, Hayne and Kiefel JJ held that a lease of land within s 568(1A) includes a lease granted by the company, or, more particularly, the contract of lease from which the company’s rights and duties as a landlord derive. It follows that a lease of land granted by the company in liquidation, is a contract which may be disclaimed under s 568(1) and which is expressly exempted from the requirement for leave of the court under s 568(1A).
- Counsel for the leaseholders relied upon the judgment of Keane J in Willmott Growers on this question. In his Honour’s view, leave would be required. The part of the judgment of Keane J which was the subject of this submission is as follows:
“While a liquidator of a lessor may disclaim the lessor’s property consisting of a contract to lease land, that would not be a disclaimer of the lessor’s property consisting of ‘a lease of land’. By virtue of s 568(1A) of the Act, it would be necessary for a liquidator to seek leave of the court to disclaim the lessor’s contract to lease land.”
But this was a dissenting judgment. Unlike the majority, Keane J considered that “a lease of land” in s 568(1A) was a contract comprising of a lease under which the company in liquidation was the tenant and that it could not include a lease under which the company was the landlord. This explains the distinction, within the passage from his Honour’s judgment, which I have set out between the disclaimer of the lessor’s property consisting of a contract to lease land and a disclaimer of property consisting of a lease of land. Because this was a dissenting view, it cannot be given the effect which the leaseholders would attribute to it.
- In the course of his oral submissions on this question, counsel of the leaseholders at one point seemed to suggest that some parts of the contract of lease should be distinguished from others. He suggested a distinction between the conferral of a right of exclusive possession to the subject berth and the non-exclusive right to use what had been the means of access to that berth over other parts of the marina structure. It was apparently suggested that only the former could be within the expression “a lease of land” in s 568(1A) so that leave to disclaim was required for the balance of the contract. To the extent that that submission was pressed, it cannot be accepted. It is the contract as a whole, the “bundles of rights and duties which together can be identified as species of property”, which is the subject of the disclaimer.
- It follows that the liquidators do not require the leave of the court to disclaim the leases.
- Upon disclaiming property, a liquidator must give notice to persons having an interest in the property: s 568A(1). Where a disclaimer has not taken effect, a person having an interest in disclaimed property may apply to the court (within a specified time) to set aside the disclaimer: s 568B. Where a disclaimer has taken effect, then with the leave of the court, such a person may apply to set aside the disclaimer. In each case, the power to set aside a disclaimer can be exercised only where the court is satisfied that the prejudice caused by the disclaimer is grossly out of proportion to the prejudice that setting aside the disclaimer would cause to the company’s creditors: s 568B(3) and s 568E(5).
- This is not an occasion upon which it is necessary to assess each of those kinds of prejudice. However, it is presently relevant that, upon the evidence in this proceeding, it can at least be said that there is no apparent prospect of a disclaimer of the leases being set aside.
- The liquidators required the approval of the court, a committee of inspection or a resolution of creditors in order to enter into each of these contracts, because the term of the contract might extend beyond three months from its date: s 477(2B) of the Corporations Act. That section applies to a voluntary winding up by reason of s 506(1A). In the circumstances which I have discussed, I conclude that it is conducive to the expeditious and beneficial administration of the winding up that these contracts be approved. Approval under s 477(2B) may be granted retrospectively. I am persuaded that the court should grant that approval and declare that the entry into the agreements is not invalid for want of a prior approval.
- For these reasons, there will be orders as sought in paragraphs 1, 3 and 4 of the Originating Application. There will also be an order for the non-publication of exhibit JED2 to the affidavit of Joanne Emily Dunn sworn on 23 July 2015.
 T 1-3.
 (1997) 42 NSWLR 209, 212.
 Corporations Act 2001 (Cth) s 568B(3).
 First affidavit of J E Dunn, para [40(c)(i)].
 Respondents’ Written Submissions, para .
 (2013) 251 CLR 592;  HCA 51.
 Ibid 597 .
 Ibid 603-604 .
 Ibid 604 .
 Ibid 604 .
 Ibid 608-609 .
 Ibid 624-625 .
 Ibid 604 .
 In the case of s 568E(5) the prejudice to persons who have changed their position in reliance on the disclaimer taking effect must also be considered.
 Corporate Affairs Commission v ASC Timber Pty Ltd (1998) 29 ACSR 109, 117.
 Stewart, Re NewTronics Pty Ltd  FCA 1375, 7 .
 As to the power to so declare see Re Forestview Nominees Pty Ltd (in liq) (2007) 164 FCR 237, 246, 247 , -.
- Published Case Name:
Re Williams Corporation Pty Ltd (in liq) & Hinchinbrook Resorts & Cruises Pty Ltd (in liq)
- Shortened Case Name:
Re Williams Corporation Pty Ltd (in liq)
 QSC 324
19 Nov 2015
No Litigation History