Specialised Welding Australia - Case Update

The Federal Court has ruled the appointment of receivers by a company’s director to be valid over the objection of a secured creditor which appointed its own receivers, leaving two sets of receivers in place at the same time.

John Grono was a director of Specialised Welding Australia, a Kwinana Beach, WA-based fabrication engineering company. He and the company entered into a loan agreement in September 2022 and a general security deed in October 2022. As at 7 November 2022, the amount owing under the loan agreement was nearly $4 million. On that day, the company’s directors resolved that voluntary administrators (Clifford Rocke and Jimmy Trpcevski of WA Insolvency Solutions) be appointed to the company.

Mr Grono’s proof of debt was accepted and he voted in favour of a DOCA at a meeting of creditors on 13 June 2023. The DOCA was executed on 19 June 2023 and the administrators then became deed administrators. Managerial control of the company transferred from the administrators to Mitchell Garbutt — the only remaining director at that time.

Mr Grono and Mr Garbutt signed a deed of variation on 26 September 2023. Over the course of the next few weeks, Mr Grono advanced a total of $335,000. In March 2024, after demanding but not receiving payment, Mr Grono issued a notice of demand for the amount outstanding. On 22 July 2024, he appointed Robert Jacobs and Andrew Smith as joint receivers and managers of the company (the Grono Receivers).

Blackbird First Mortgage Corporation, a secured creditor, disputed Mr Grono’s right to appoint receivers and appointed Richard Albarran and Brent Kijurina of Hall Chadwick (the Blackbird Receivers) as receivers and managers of the company on 25 July 2024, although they retired their appointments as managers (but retained their appointments as receivers) on 1 August 2024.

Blackbird then sought orders under s 418A of the Corporations Act 2001 (Cth) declaring the appointment of the Grono Receivers to be invalid. Blackbird’s position was that external administrators had previously been appointed and a DOCA had previously been approved by the company’s creditors, including Mr Grono, with the effect that any security interest previously existing under the general security deed or loan agreement as varied by the deed of variation was extinguished. More specifically, Blackbird argued that Mr Grono’s right to be repaid on the $335,000 was a contingent claim that existed at the time of and was extinguished by the DOCA, meaning that Mr Grono was not entitled to appoint receivers and managers to the company.

For his part, Mr Grono argued that the deed of variation gave rise to a new and discreet claim post-dating the DOCA which was validly secured by at least the general security deed.

The Court agreed with Mr Grono, finding that the obligation to repay the $335,000 was created by the deed of variation, and that the loan agreement in its original form did not supply the “source” or “seed” of the obligation to repay the debt. In other words, the entering into the deed of variation was not a contingency that triggered any obligation previously existing under the loan agreement in its original form. A creditor in Mr Grono’s position was entitled to ask what claims he had against the company as at the relevant date, including contingent claims, and that is all that he compromised when voting on the DOCA.

Read the decision HERE.

Counsel for the Plaintiff (Specialised Welding Australia (Receivers Appointed)): Dan Butler

Solicitor for the Plaintiff (Specialised Welding Australia (Receivers Appointed)): Murcia Pestell Hillard

Counsel for the First and Third Defendants (Gregory Wayne Disselkoen and Specialist Welding Australia): Mr William MacDonald

Solicitor for the First and Third Defendants (Gregory Wayne Disselkoen and Specialist Welding Australia): Roe Legal Services

Counsel for the Second Defendant (Mitchell Garbutt): Damian Molony

Solicitor for the Second Defendant (Mitchell Garbutt): Armeli & Molony Lawyers

Counsel for the Fourth Defendant / Cross-Claimant (Blackbird First Mortgage Corporation): Wayne Zappia of Francis Burt Chambers

Solicitor for the Fourth Defendant / Cross-Claimant (Blackbird First Mortgage Corporation): Mendelawitz Morton

Counsel for the Fifth Cross-Respondent (John Grono): D Murphy

Solicitor for the Fifth Cross-Respondent (John Grono): McNally & Co Litigation