It doesn’t matter how cunningly presented the question, if the court decides it’s being asked to approve a commercial decision then you’re on your own.
For one South Australian-based liquidator the likely result of a decision by a court to decline to bestow its imprimatur on their application for advice will be litigation with a disgruntled creditor.
The application was brought in the Supreme Court of South Australia by Andre Strazdins in his capacity as the liquidator of the The Roxby Downs Club Incorporated (“the Club”).
According to the judge who refused to grant Strazdins the directions he sought, the Club was incorporated in the late 1970’s or early 1980’s and owns one of few pieces of freehold land in Roxby Downs, site of one of the world’s largest known poly-metallic mineral deposits and BHP’s immense Olympic Dam mine and processing works.
In the matter of Roxby downs Club incorporated (In Liquidation); Club Management Services (SA) Pty Ltd v Roxby Downs Club Incorporated (In Liquidation) [2024] SASC 120 Justice Katrina Bochner of the Supreme Court of South Australia said that the question Strazdins asked the Court to consider was a commercial one.
“I accept that Mr Strazdins seeks to protect himself in the event that he chooses a path that may lead to further expense in the liquidation, including further litigation,” the judge said.
“Nonetheless, that is one of the burdens taken on by a liquidator when he or she assumes that role. In the circumstances of this case, it is a burden that he must carry alone.”
The dispute relates to an agreement the Club entered into in 2008 with Club Management Services (SA) Pty Ltd (“CMS”).
As part of the agreement CMS would lend money to enable the club to redevelop the Club’s buildings and to fit out the Club’s premises after which it would provide management services.
Two separate loan agreements were entered into, the first in the sum of $3,700,000, for the redevelopment and the second in the sum of $550,000 for its fit out. An interest rate of 9 per cent per annum was to be applied to each loan.
After Strazdins was appointed liquidator in 2022 CMS lodged a proof of debt in the sum of $6,190,033.05.
But when Strazdins assessed the proof he formed the view that there was a basis to doubt the amounts claimed.
In particular, he considered that the loan agreements allowed CMS to claim simple interest, but the accounts suggested that interest had been calculated on a periodic capitalised basis.
As such there was in his view insufficient evidence to allow him to be satisfied of the amount actually lent to the Club, how interest had been calculated, whether amounts paid by the Club had been properly accounted for, and whether the moneys loaned were used for their intended purpose.
According to her honour’s judgment Strazdins “was concerned that, in support of the debt, he was unable to find the amount of documentation that he would expect, including a detailed ledger setting out how and when funds were repaid and how interest was calculated, a complete audit trail with respect to the delivery and use of materials for the redevelopment and fit out of the Club, and a record relating to the increased costs to complete the redevelopment and fit out.
“This was in spite of the Club’s retaining experienced external bookkeepers, accountants and auditors.”
Subsequently he undertook public examinations which led him to the conclusion that the proof of debt in the claimed by CMS should be rejected.
CMS has fought that decision all the way, including by way of impugning the conduct of the liquidation.
Further, when Strazdins found a buyer for the Club’s assets CMS indicated that it would oppose the sale, hence Strazdins’ unsuccessful application, which he brought ex-parte, a feature of this matter that the judge indicated made it difficult to grant the liquidator the relief he sought. Maybe Strazdins’ lawyers need to reassess their approach?
If the proof of debt related to the entirety of the debt claim by CMS why is this not final? If CMS was unhappy it would be able to seek to review the decision according to the rlevant provisions and establish in effect in adversarial proceedings that it is a creditor.