Practitioners accepting gigs as voluntary administrators (VAs) after winding up proceedings have been commenced continue to be cannon fodder for Australia’s largest creditor.
Recently we reported on a VA’s challenge to the hearing of an application to wind up of Rio Dorado Limited via an application for an adjournment. The argument was that creditors should have the opportunity to vote on a DoCA proposal to be put at the second meeting.
Unable to demonstrate how that DoCA proposal compared with returns generated in a liquidation scenario and with the conduct of some of the directors a matter of some concern to the judge presiding, that adjournment attempt didn’t end well for the VA involved.
The application was refused, the VA failed to be appointed liquidator in the subsequent winding up hearing and he may shortly find himself defending an application that he pay from his own pocket the costs the petitioning creditor incurred opposing adjournment.
Rio Dorado was decided by Justice Ashley Black of the NSW Supreme Court on November 10. Yesterday it was the turn of the Federal Court’s National Judicial Registrar Nicola Colbran to crush the aspirations of VAs hot for a second meeting.
In the first such matter BDO’s Matt Blum and Luke Andrews – represented by barrister Simon Rubinstein – sought to have adjourned the hearing of a winding up application brought against solar panel builder and installer Sunflower Assets Pty Ltd (Sunflower) by the mother of all unsecureds, the Deputy Commissioner of Taxation (DepComm).
The winding up application was filed on September 15 but Blum and Andrews weren’t appointed administrators until October 15 and the second meeting was scheduled to take place today.
According to Blum and Andrews’ Declaration of Independence, Relevant Relationships and Indemnities (DIRRI) the appointment was referred to them by the BDO R&D and Grants department in Adelaide which apparently provided services to a related entity of Sunflower. Related parties all round in other words.
Rubinstein explained that the business of Sunflower was operated by two entities. Sunflower managed the contracts while related entity Xirasol Pty Ltd manufactured and installed the solar panels.
The deed fund would hold approximately $500,000, a fair way short of covering the debt the company owes to the tax office of some $2.3 million and would include two payments from each director of $35,000, though those payments were not being offered up front.
Xirasol meanwhile would relinquish any claim it had to the proceeds of contracts it completed.
The deed fund payments were also to be staged, with an initial amount of $150,000 to be paid within two months and $280,000 to be paid within three to six months after execution.
Related parties meanwhile would have no claim on the deed fund and any debts collected by the VAs would also be allocated to the deed fund.
In respect of potential recoveries in a liquidation, Rubinstein said that the VAs had identified a $660,000 insolvent trading claim, the directors had raised potential defences and indicated they’d vigorously defend any such proceedings brought against them and, as is commonly the case, there were no funds in the company available to pursue such a claim.
Registrar Colbran heard however that despite the administrators’ recommendation in favour, the DepComm, which was by far the largest creditor by value, intended to vote no.
KL Gates senior associate Tom Trotman pointed out that a court must be satisfied that adjourning the hearing of a winding up application to allow creditors to vote on a DoCA proposal is in the best interests of those creditors, as opposed to “may be” in their best interests.
He said the DepComm’s primary concern was that no funds were being provided up front. Further, no evidence had been put before the Registrar to show that the directors had the capacity to make their $35,000 contributions.
He also said the possibility of disputes arising between Xirasol and counter parties made it impossible for the VAs to show that the DoCA would be in the best interests of creditors. And then there was the matter of “grave concern”.
Alluding to the VA’s report to creditors, Trotman told the Registrar that a loan owing to Sunflower of almost $7.5 million had been set off in the company’s accounts as at June 30, 2023.
“We submit that the court should be circumspect about the motives of the directors in appointing the administrators in light of the large loan owing to the defendant that has been offset,” Trotman said.
And circumspect the Registrar was, ordering that Sunflower be wound up and the DepComm’s nominee Robert Ditrich of PwC be appointed liquidator.
Blum and Andrews however weren’t the only VAs presuming to emerge unscathed from a canter into the Valley of Death.
In the matter of Deputy Commissioner of Taxation V Grant Metal Fabrication Pty Ltd, Dye & Co’s Shane Dean came before Registrar Colbran in his capacity as VA seeking a three week adjournment to allow time for the director to put forward a DoCA proposal.
Deane’s lawyer David Adason of Aptum Legal flagged that if his client regarded the anticipated DoCA proposal as sound, then he would apply for a further adjournment of the winding up hearing to allow Dean to complete and issue a report to creditors ahead of the second meeting.
The facts of the situation were pretty stark. Deane had identified assets of the company worth about $50,000. Against that was almost $2 million in liabilities including $146,000 owed to employees and unrelated creditor claims of $1.62 million.
Again the DepComm, represented again by Trotman, resisted.
Trotman told the court that Deane was appointed a month after the winding up proceedings were commenced and a week before yesterday’s hearing.
He said he didn’t think the court should indulge the excuses proffered, which included the director spending time unsuccessfully exploring his chances of entering the small business restructuring regime, followed by a delay blamed on the director’s book keeper being ill.
The big obstacle for Deane in this matter was that he couldn’t provide the court with hard evidence that a DoCA would even be proposed, and persuading a Registrar to adjourn a winding up hearing on that basis might seem an exercise in futility.
The adjournment application was dismissed, the company was wound up and the DepComm also got its way in terms of preferred liquidator, with Rodgers Reidy director Brent Morgan appointed.
As the results show, practitioners accepting 11th hour appointments as administrators need to show courts that adjourning a winding up won’t backfire.
Without convincing evidence to that effect they are mere cannon fodder for the DepComm, and grist for iNO’s mill.
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