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Rimfire Constructions (Qld) Pty Ltd (in liq) v CRCG-Rimfire Pty Ltd

 
Unreported Citation: [2020] QSC 92
EDITOR'S NOTE

The matter for consideration here turned on the proper characterisation of the final proof of debt claim made by the liquidator of the applicant construction company. The applicant had novated its rights and obligations under two building contracts to the respondent. The applicant subsequently went into liquidation. By the final proof of debt, the liquidator claimed that the respondent was subject to an undetermined voidable transaction claim for approximately $1.6 million. That claim was based on the respondent’s entitlement under each of the novation agreements to receive, after providing bank guarantees, the cash retentions held by each developer. The deed administrators rejected the proof of debt on the basis that the liquidator had no more than a right to apply for a discretionary order that the transaction was voidable under s 588FF Corporations Act 2001 (Cth). The liquidator appealed, arguing that she was entitled to rely on existing rights under the regime in Pt 5.7B Corporations Act 2001 (Cth). Martin J dismissed the application.

Martin J

1 May 2020

Background

The applicant was a construction company operating as part of the Rimfire Construction Group. [8]. The respondent was a joint-venture between the Rimfire Construction Group and China Railway Constructions Group. [9]. In March 2017, the applicant had been unable to provide bank guarantees to cover potential defects on two of its projects, so the developers of those projects had withheld payments to the applicant totalling approximately $1.6 million. [10]–[11]. The applicant later novated those projects to the respondent. [13]–[14].

As part of the novation, the respondent provided the project developers with bank guarantees and received the payments that had been withheld. [13]–[15]. When the applicant and respondent subsequently agreed to settle financial matters between them, the applicant was paid approximately $400,000 in respect of the projects. [16]. An administrator was appointed to the applicant in September 2017, and a liquidator was appointed in October 2017. [17]. Deed administrators were appointed to the respondent in March 2018. [18]. The parties agreed that the applicant was insolvent when the parties entered into the novation agreements. [22].

The liquidator later lodged a proof of debt with the deed administrators, claiming that the respondent was subject to a voidable transaction claim of approximately $1.6 million arising from the novated projects. [20]–[21]. The proof was rejected, and the liquidator appealed. [1]–[2]. The deed administrators contended that the subject of the proof was not provable, as the liquidator had no more than a right to apply for an order under s 588FF Corporations Act 2001 (Cth). [24]. The liquidator argued she was entitled to rely on existing rights under the regime in Pt 5.7B Corporations Act 2001 (Cth). [32].

Whether the alleged uncommercial transaction was provable

Martin J observed that the scope of a provable debt under a deed of company arrangement was considered in BE Australia WD Pty Ltd v Sutton (2011) 82 NSWLR 336. [25]. In that case, it had been determined that a person has a “claim” within the meaning of s 553 Corporations Act 2001 (Cth) “if he or she [has] a basis, founded on an existing legal right, for asserting a right to participate in the division of the assets of the company”. [25]–[29]. His Honour noted that it was therefore necessary to characterise the claim made by the applicant’s liquidator. [31].

His Honour identified that the “‘right’ to participate in the division of assets (which is what the proof of debt is meant to demonstrate) of the company does not arise ... until, at least, the facts are determined, and an order is made under s 588FF Corporations Act 2001 (Cth)”. [34]. Martin J explained that the “uncommerciality” of transactions under the Pt 5.7B Corporations Act 2001 (Cth) regime can only be “dealt with” once an order is made “on the application of a company’s liquidator” under s 588FF Corporations Act 2001 (Cth). [38]. His Honour concluded that until that occurred, there was nothing to found the proof of debt relied upon by the applicant’s liquidator. [38].

Disposition

In the result, Martin J dismissed the application. [51].

B McNamara