Stay of Receivership Denied in NSW Supreme Court

The court denied an extension of the stay of proceedings, allowing the receivership to proceed. The applicant argued that a contract with the Commonwealth Government would generate income to pay off creditors, but the court found no sufficient reason to extend the stay beyond the initial period.

Supreme Court New South Wales

Medium Neutral Citation: In the matter of [COMPANY] [2016] NSWSC 1939 Hearing dates: Tuesday, 6 December 2016 Date of orders: 06 December 2016 Decision date: 06 December 2016 Jurisdiction: Common Law Before: Brereton J Decision: Stay not extended Catchwords: CORPORATIONS – winding up – winding up in insolvency – application by [NAME] for appointment as receiver of trust assets – by previous order, appointed but stay granted – application for extension of stay – whether there is sufficient reason for [NAME] to be held out any longer of its legal right to have receivership proceed – arrangements made with third party, even if Commonwealth Government, irrelevant. Category: Consequential orders (other than Costs) Parties: [NAME] (plaintiff) [COMPANY] (defendant) [NAME] (applicant) [COMPANY] (respondent) Representation: Counsel: [redacted] [NAME] (respondent)(in person)

Solicitors: [redacted] File Number(s): 2015/326742

Judgment (ex tempore)

1. HIS HONOUR: On 24 October 2016, I heard an application by the [NAME] of [COMPANY] for the appointment of himself as receiver of assets which that company had held on trust, being three strata lots in Culwulla Chambers. For reasons given the following day, I ordered that the [NAME] be appointed without security as receiver of the three strata lots in question, with the powers that a [NAME] has in respect of property of a company, but that the receiver not distribute the assets to creditors or beneficiaries without the further direction of the Court. I reserved leave to the parties to apply for directions on 48 hours' notice by arrangement with my Associate. On the application of [NAME], who appeared as a creditor but who has a beneficial interest in the underlying assets via a [NAME], of which the respondent [NAME] is the trustee, I granted a stay. Initially, I was minded to grant a stay for four weeks, but on [NAME]' urging ultimately granted a stay until today, 6 December 2016, upon his undertaking that he would not in the meantime cause, permit or suffer the subject assets to be transferred, encumbered or otherwise adversely dealt with. I also granted each party liberty to apply by arrangement with my Associate for a variation of the stay.

2. So far as I was concerned, they were the final orders in the matter, unless some application were made to vary the stay. However, for some reason, the proceedings were administratively adjourned to today, and in any event, it is evident from the correspondence that both the [NAME] and [NAME] anticipated that the matter was returning to Court today.

3. The liberty to apply for a variation of the stay was not exercised until [NAME] made an oral application, when the matter came before the Court today, for an extension of the stay. However, the [NAME] had clearly anticipated that there would be some issue in this respect, because he swore and filed on 2 December 2016 an affidavit addressing the matter. [NAME] has read affidavits of himself and of [NAME] in support of the application for extension of a stay. The fundamental question is whether there is sufficient reason why the [NAME] should be held any longer out of his legal right to have the receivership proceed. 4. [NAME] contends that he and another company of which he is the principal (called "[NAME]") has been awarded a contract to provide dispute resolution services to the Commonwealth, which may generate income – that is to say, income for [NAME] – of in excess of $400,000 gross over the next two years. The evidence sufficiently establishes that such a contract has been awarded. [NAME] says that the contract was awarded on the basis that the services would be provided from the lots in question in Culwulla Chambers. The evidence establishes that the tender referred to the provision of services from those premises; and although it does not establish that it was a condition of the contract that those premises remain available, for present purposes, I am content to assume that there is such a condition. That contract was indicatively awarded on 10 October 2016, but was signed off on 14 November 2016. Essentially, [NAME] says that with the benefit of that contract, the oral lease already said to have been granted by ABCD to [NAME] can be formalised, and ABCD can then demonstrate to a lender that it has an income stream in order to raise a loan and pay out the [NAME].

5. On 1 November 2016, the [NAME] and [NAME] had a meeting in the course of which the [NAME] presented two alternative courses: one, involving the receivership proceeding and the subject assets being realised, the creditors be paid out and the [NAME] remunerated, and a balance being available for the superannuation fund; and the other, involving funds being contributed to the liquidation to enable the unrelated creditor to be paid out, and the [NAME]'s costs, expenses and remuneration to be funded without any realisation of assets. It is clear enough – including from the photograph of the [NAME]'s whiteboard taken by [NAME], which he annexes to his affidavit – that the [NAME] indicated that a sum in the order of $192,000 would be required to enable that alternative course to proceed. There is no evidence of [NAME] or anyone else having made any proposal to the [NAME] to pay that sum or something like it, or of any offer to do so, or any in principle commitment to do so, let alone of any attempt to raise finance in order to be able to do so.

6. Bearing in mind that the contract was signed off on 14 November, there is no apparent reason why any lease by ABCD to [NAME] could not have been formalised very swiftly thereafter, and there is no sufficient explanation as to why not a single approach to a financier has been made in the meantime. 7. [NAME], when asked by me how long he would need to raise and pay in the order of $200,000 to the [NAME], indicated or responded to the effect "Three months". That in itself is ample reason as to why this application must be refused. There is no sufficient prospect of success in raising those funds to hold the [NAME] out of his legal rights for a further three months. (I had rather been hoping the response would have been in the order of days or a week, in which case, I might well have taken a different view). 8. [NAME] has stressed that by not extending the stay, the Commonwealth Government, which has granted the contract for dispute resolution services, will be inconvenienced. That may be so, but it seems to me a completely irrelevant consideration on the present application which is about whether the [NAME] should be held out of his legal rights; the arrangements that [NAME] has made with a third party, albeit the Commonwealth Government, is irrelevant to that question.

9. For those reasons, in my view, no basis has been established for holding the [NAME] out of his legal rights any longer, and the stay is not extended.

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