In Deputy Commissioner of Taxation v WPS Motorsport Pty Ltd (2009) 1 ACSR 640, the Deputy Commissioner of Taxation applied for the winding up of WPS Motorsport Pty Ltd (administrator appointed) (WPS Motorsport). At the time of the winding up application WPS Motorsport was not in administration. The day before the hearing of the winding up application, the directors of WPS Motorsport resolved to appoint an administrator under section 436A of the Corporations Act 2001 (Cth) (Act). That same day an administrator was appointed.
At the hearing of the winding application, Logan J had to determine, having regard to s440A(2) of the Act, whether he was satisfied that it was in the interests of the creditors of WPS Motorsport for the company to continue under administration rather than being wound up. His Honour accepted that if he was so satisfied, then s440A(2) would oblige him to adjourn the hearing. His Honour reasoned that in order to satisfy the Court of that matter, the onus is on the person seeking the adjournment to produce persuasive evidence of the existence of assets which, if realised under administration rather than liquidation, would produce a larger dividend, or at least an accelerated dividend, for the creditors.
For the purpose of determining that issue, his Honour had the following evidence to consider:
- A report as to the company's affairs (Report) prepared on behalf of the company by one of its directors, which recorded the only assets of the company as being plant and equipment valued at approximately $100,000, and creditors of the company, which were all unsecured, as being owed debts of at least $6,195,177.
- A deed of company arrangement (DOCA) which the directors of WPS Motorsport were proposing to put at a meeting of creditors, the salient point of which was that the company would pay into the deed fund the sum of $200,000, being an amount sufficient to pay all participating creditors 6 cents in the dollar.
- Affidavit evidence of a director of WPS Motorsport deposing to the fact that he had had a discussion with a Mr Steve Di Petta who had told him that he was interested in V8 Supercar racing, that he agreed there was value in the brand 'WPS Motorsport', and that he was interested in acquiring the company.
- Affidavit evidence of Mr Di Petta confirming that he was interested in V8 Supercar racing, that he believed the company was positioned to build a V8 Supercar racing team and that he was prepared to commit $200,000 to purchase the company, subject to, amongst other things, consent from third parties to the assignment of 'key contracts' (which were not identified).
Of this evidence his Honour noted that if there was any value in the brand 'WPS Motorsport' it was apparent from its absence in the Report that it was not a value which commended itself to the directors for inclusion as an asset of the company in the Report. As to the ‘key contracts’ his Honour noted that exactly what those ‘key contracts' were was a 'complete mystery' on the evidence and that if such 'key contracts' did have any value he would have expected to see an estimate of that value in the Report. Again there was none.
Having regard then to the estimated worth of the only disclosed assets, and the costs of liquidation, his Honour concluded that there was little prospect of a return to creditors in liquidation. There was however some prospect, under the proposed DOCA, of a return of six cents in the dollar. The difficulty his Honour faced was in finding any substance in what WPS Motorsport had to offer. According to his Honour, there should have at least been raised the existence of an asset which is the subject of the proposed transaction. In this case his Honour said 'there is just no evidence at all. There is only some vague reference in terms to which I have referred.'
His Honour then held that he was not persuaded that it was in the interests of the creditors of the company to continue under administration and ordered that the company be wound up.
This case illustrates that provided there are assets on which a DOCA can operate, a last minute appointment of an administrator will not be too late to avoid liquidation, but vague references to what those assets might be or what they might be worth will not be enough.