Sydney Allen Printers - Case Update

The High Court of Australia has upheld a decision setting aside a pooling order which treated two companies as a group, finding that the gateway in s 579E(1)(b)(iv) was not satisfied and that the pooling order should not have been made. Although there was a significant degree of interconnectedness between the companies, the asset at issue was a potential future chose in action jointly held by the two companies, which did not have the required connection with the previously existing business that they carried on jointly to satisfy a pooling order on the grounds relied on in this case.

Sydney Allen Printers (“SAP”) and Sydney Allen Manufacturing (“SAM”) operated a colour printing business. SAP ordered supplies and did all the printing work, while SAM owned the equipment used in the business. SAM created credit facilities which SAP used to order supplies. SAP paid creditors in the course of operating the business. However, entries in the internal accounts between SAP and SAM indicated that SAP paid the creditors on behalf of SAM.

In 2015, McMillan Investment Holdings ("MIH") provided a finance facility to the companies. In April and May 2016, MIH appointed a receiver to SAP and SAM under the finance facility. On 4 May 2016, the receiver, SAP and SAM entered an agreement with Print Warehouse Australia to sell, as a going concern, the assets and business operated by SAP and SAM for $1.3 million. The agreement defined the "Seller" as SAP and SAM collectively, and no provision was made for distribution of the $1.3 million between SAP and SAM.

Around the same time, liquidators were appointed to SAP and SAM. Completion occurred on 1 July 2016 (when both SAP and SAM were in liquidation). One liquidator retired, leaving the remaining liquidator as the sole liquidator.

The liquidator sought orders for the pooling of SAP and SAM under s 579E(1). The liquidator argued that Print Warehouse had made a stronger offer but reduced its purchase price by $300,000 at the last minute, instead paying those funds to a company associated with MIH (referred to as “MGS”). As a result, the liquidator argued that the purchase price should have been $1.6 million.

There were several disputes, including whether a ground or "gateway" had been established for a pooling order. Two gateways were relied upon by the liquidator: s 579E(1)(b)(ii) and s 579E(1)(b)(iv). The primary judge held that the gateway in s 579E(1)(b)(iv) permitted the making of the pooling order due to the existence of a chose in action to seek recovery of money from MGS based on an allegation that the money had been wrongfully paid to that company.

The primary judge found that SAP and SAM jointly and severally owned the chose in action, and concluded that "SAM and SAP will be able to use" that chose in action in connection with their "undertaking carried on jointly to discharge their debts and conduct recovery of their assets". Therefore, the primary judge concluded that the gateway in s 579E(1)(b)(iv) was satisfied by the future use of a chose in action in the course of the liquidations. The primary judge did not go on to consider whether the gateway in s 579E(1)(b)(ii) could also have permitted the pooling order.

MIH appealed to the Full Court on the basis that the gateway in s 579E(1)(b)(iv) was not satisfied. A majority of the Full Court allowed the appeal, holding that s 579E(1)(b)(iv) requires a past or present joint undertaking, not a future joint undertaking to enforce debts as found by the primary judge.

By special leave, the liquidator appealed to the High Court of Australia. The High Court dismissed the appeal, finding that the mere availability to SAP and SAM of an alleged chose in action, arising from the disposal of the business of the companies, and which might be enforced in the future, did not have the required connection with the previously existing business that they carried on jointly to satisfy the gateway requirement in s 579E(1)(b)(iv).

Read the decision HERE.

Professionals involved:

• Bret Walker SC of Fifth Floor St James’ Hall with Julian Svehla of 153 Phillip Barristers (instructed by Somerset Ryckmans) for McMillan

• Marcus Pesman SC of Queen’s Square Chambers with Michael Rose of 9 Wentworth Chambers for the liquidator, John Morgan of BCR Advisory (instructed by ERA Legal)