NSWSC: Liquidators Must Not Use Casting Vote to Veto Their Removal
In a recent judgment delivered by the Supreme Court of New South Wales, the court found in favour of a creditor who sought to remove its liquidator, despite previously failing to do so at a meeting convened pursuant to the Insolvency Practice Schedule (Corporations).
Background
The case involved The Owners – Strata Plan 84741 (Strata Plan) who were the body corporate of a block of flats located in Clovelly. Strata Plan commenced proceedings against Iris Diversified Property Pty Ltd (Iris) and the builder of the apartment complex. The builder was subsequently placed in external administration and the proceedings continued against Iris. Before judgement was handed down, Iris sold a substantial property which they claimed was unrelated to Strata Plan’s claim against them. They also asserted that the assets they owned were owned in their capacity as trustee.
Following two 2017 judgements, Strata Plan became a creditor of Iris in the total amount of $1 799 937.91. Iris Group Management (IGM) - an entity associated with Iris Diversified - also claimed debts of $207 000. In October 2017, Iris was placed in liquidation and Henry McKenna appointed as liquidator.
Following this, Strata Plan requested that McKenna convene a meeting with the creditors of Iris Diversified, at which they sought to have him replaced by Liam Bailey and Christopher Palmer.
Prior to the meeting, McKenna was advised by his lawyers that he could exercise his casting vote against the resolution, so that it failed to pass. Strata Plan subsequently initiated proceedings after McKenna acted according to his lawyer’s instruction.
Decision
In deciding the case, the court was required to determine whether McKenna had power to exercise a casting vote against the resolution of his removal and whether resolution for McKenna’s removal should be ‘treated a passed’ and liquidators appointed.
In seeking a declaration that McKenna had no power to exercise a casting vote against his removal and the appointment of Bailey and Palmer as replacement liquidators, Strata Plan relied on r 75-115 (5) of the Insolvency Practice Rules (Corporations).
These rules provide for circumstances in which a resolution is passed at a meeting of creditors after a poll is demanded. The rules specify that the external administrator may exercise a casting vote in favour of the resolution where:
- no result is reached by a majority in number and value of creditors voting in favour or against the resolution; and
- The resolution relates to the removal of an external administrator of a company.
Despite this, they ultimately contended that the rule does not contemplate the external administrator exercising a casting vote against the resolution to remove themselves.
The court held that it was not necessary to determine whether the effect of that rule was to determine whether McKenna had power to exercise a casting vote or if its effect is merely that his vote was to be disregarded.
Ultimately, Black J ordered that Bailey and Palmer be appointed as joint liquidators of Iris, with McKenna ordered to pay costs without recourse to the assets of Iris.
This case signals an important reminder for liquidators tempted to use their casting vote to defeat a resolution calling for their removal. It is also telling for lawyers who are advising clients on how to vote in deadlocked meetings.
CBA Joins World Bank To Deliver World's First Blockchain Bond
The World Bank has endorsed the Commonwealth Bank of Australia as the sole arranger of the world’s first blockchain bond. The development comes in response to strong investor interest in bond-i (blockchain offered new debt instrument) technology, and is expected to launch following consultation with a wider investment group.
Labelled ‘$AUD Kangaroo bond’, the new technology seeks to utilise blockchain technology to create, allocate, transfer ownership and manage live bond deals. By affording an automated process for buying and transferring security ownership, the technology promises to create efficiencies for issuers and investors. In doing so, it simplifies the transaction process by removing the need for reconciliation of data between different IT systems, thus enabling all parties to rely on a synchronised ledger showing ownership in real time.
The World Bank has championed blockchain for streamlining processes among debt capital market intermediaries and agents, declaring that it will enhance regulatory oversight, improve operational efficiencies and simplify raising capital and trading securities. It marks the first time globally that a legally binding bond will be created, allocated, transferred and managed through its life cycle solely using distributed ledger technology.
However, the new bond will not fully embrace blockchain technology. Instead, in order to avoid Australia’s 10% goods and services tax on fiat-currency-linked tokens, payments will be made via the existing SWIFT system.
The transaction is estimated to raise between $50 million and $100 million and is expected to launch from the World Bank’s existing global debt issuance facility in the coming weeks. We are excited to watch as Australia leads the way in implementing this world class technology and are eager to see how global bonds progress following its launch.
FCA: Trustees Entitled to Acquire Assigned Claims
In Rambaldi v Meletsis, in the matter of Karas (Bankrupt) [2018] FCA 791, the court was required to consider whether the trustees of a bankrupt estate had the power to acquire assigned claims.
Background
In 2011, Nick Meletsis replaced his brother-in-law, Tom Karas, as the sole director and shareholder of 70 Nicholson Street Pty Ltd. Following this, the property at 70 Nicholson Street Fitzroy was sold to Establishment 5, and a mortgage which Karas held over the property was subsequently discharged.
Karas become bankrupt on 16 October 2015 and in February 2016, Yeo and Rambaldi were appointed the joint and several trustees of his estate, replacing the initially appointed trustees. Following their appointment, Yeo and Rambaldi commenced investigation of Karas' affairs and subsequently raised questions over the discharge of Karas' mortgage. In doing so, the pair concluded that further investigation was required to confirm that no money was owing to Karas’ estate.
In late 2016, the liquidator provided Yeo and Rambaldi with documents relating to the sale of 70 Nicholson Street, along with a note advising that he intended to finalise the liquidation due to depleted funds. Yeo and Rambaldi subsequently obtained further material from Karas' former lawyers, and enabled by funding from the Deputy Commissioner of Taxation (DCT), conducted further examinations pursuant to s81 of the Bankruptcy Act.
Following this, the pair concluded that 70 Nicholson Street had causes of action against various related parties, and that as a result of property dealings undertaken prior to liquidation, the company owed the bankrupt estate in excess of $1.1 million.
In July 2017, Yeo and Rambaldi offered to acquire the assigned claims for $25 000. Having obtained approval from the creditors of 70 Nicholson Street, the liquidator accepted the offer the following September and a deed of assignment was subsequently executed. Pursuant to the deed, both the liquidator and 70 Nicholson Street assigned their rights, title and interest to the trustees.
Decision
This case ensued after Howard Speer and Establishment 5 Developments (two parties associated with the property transactions) challenged the assignment of claims. In doing so, they sought a summary dismissal of the assigned claims on the basis that they could not be held to be property of the bankrupt estate.
Yeo and Rambaldi subsequently initiated proceedings, seeking confirmation that they had power to acquire the claims from the liquidator of 70 Nicholson Street and that deed of assignment was ‘valid and enforceable’. They also sought judicial advice that they were justified in acquiring the assigned claims.
Moreover, the DCT sought leave to intervene in the hearing of the two interlocutory applications on a limited basis, pursuant to s30 of the Act and r9.12 of the Federal Court Rules.
In deciding the case, the court was required to consider:
- Whether Yeo and Rambaldi as trustees had power to acquire the assigned claims from the liquidator; and
- If the trustees had that power, whether the Court should give the judicial advice sought.
The Court accepted the trustee’s submission that they had power to acquire the assigned claims. In doing so, Davies J held that the powers contained in s134 were of ‘sufficiently broad compass to include the power to acquire property’ and that such a finding was consistent with both the general law and s19 of the Act.
In asserting their claim, the defendants argued that the assigned claims were not after-acquired property of the bankrupt pursuant to s58(1) and s116(1)(a), because the causes of action were acquired by the trustees not the bankrupt. However, the court held that the assigned claims were acquired by the trustees in their capacity as trustees of the bankrupt’s estate and thus the trustees had a right to sue on those claims.
Moreover, the court rejected the defendant’s contention that the assigned claims were not ‘property’ as defined by s5 of the Act. In doing so, Davies J submitted that their argument incorrectly relied upon a restrictive interpretation of the Act that was not warranted by the statutory context.
Ultimately, the court held that it was reasonable and appropriate to give the judicial advice sought and granted the DCT leave to intervene.
This case is among the first to affirm the insolvency reforms introduced last September, and highlights the manner in which insolvency practitioners may approach causes of action.
SCV: Google Not a Publisher of Online Search Results
In the decision of Defteros v Google Inc LLC, the Supreme Court of Victoria found in favour of Google, asserting that an internet search engine is not necessarily a publisher of material produced in a search.
The applicant to the proceedings, George Defteros, is the plaintiff in a defamation proceeding currently before the courts, whilst Google, the respondent, is the defendant to that proceeding. In his amended statement of claim, Defteros contends that in 2016, Google published online material that was of a defamatory nature. Specifically, that material is alleged to consist of;
- A search result returned from the entry of certain search parameters into Google’s search function; and
- An underlying webpage, accessed via a publication that presented as a result of using Google’s search engine.
In its defence, Google denied publishing the web matter. In doing so, it submitted that it is not the publisher of results that are returned to a user of its search engine, that it is not a publisher of any third-party documents hyperlinked to the result of a search using its search engine; and that it is not the publisher of any third-party document to which a user of the search engine may navigate as a result of performing a search using its search engine.
In May, Defteros filed a summons seeking to strike out various paragraphs of Google’s defence pursuant to r 23.02 of the Supreme Court (General Civil Procedure) Rules 2015, to the extent that those paragraphs asserted that Google was not a publisher of the results that were returned to a user of Google, and that it was not a publisher of any third-party documents connected to any such search result. However, that application was later dismissed by Macaulay J.
Defteros subsequently brought this action, seeking leave to appeal. In doing so, he claimed that the primary judge ‘erred in narrowly and therefore wrongly construing r 23.02’ when he concluded that ‘a pleading was only to be struck out under the rule where there is some defect in the pleading’ and that ‘essentially, the power to be exercised under r 23.02 concerned the form of a pleading rather than the legal or factual merit or substance of what is pleaded.’
However, the court held that there was no substance to either of Defteros’ proposed grounds for appeal. In doing so, it contended that the issue of being a publisher is still a question of both law and fact. Moreover, it held that the primary judge was not bound by the decision in Duffy, as at no point did that case articulate any relevant principle of law that required the judge to strike out Google’s plea that it was not a publisher. Lastly it held that there was no rule of law preventing Google from leading fresh evidence in a separate trial, as it intended to do so here.
Ultimately, the court held that the primary judge’s determination that he was not bound by the Full Court’s decision in Duffy to strike out any parts of Google’s defence was correct.
