Morgan v McMillan — Pooling Orders Under Part 5.6A

Background

Morgan v McMillan Investment Holdings Pty Ltd [2024] HCA 33 is a High Court of Australia decision concerning pooling orders under Part 5.6A of the Corporations Act 2001 (Cth). The case considered the gateway requirements in section 579E(1) for making a pooling order in relation to two or more related companies in liquidation.

Under section 579E, a court may make a pooling order that treats two or more related companies being wound up as if they were one company, allowing their assets and liabilities to be consolidated for the purposes of distribution to creditors.

Facts

Two related companies operated a colour printing business:

• Sydney Allen Printers Pty Ltd (SAP) — ordered supplies, employed staff, and performed the printing work.
• Sydney Allen Manufacturing Pty Ltd (SAM) — owned and controlled the printing presses and equipment used in the business.

In March 2015, both companies entered a joint finance facility with McMillan Investment Holdings Pty Ltd (MIH). Both SAP and SAM entered liquidation in April–May 2016. MIH appointed a receiver who conducted a sale process. On 4 May 2016, the business and assets of SAP and SAM were sold as a going concern to Print Warehouse Australia Pty Ltd for $1.3 million.

On the same day, an MIH-related company invoiced Print Warehouse $330,000 for undisclosed "services." The liquidator, Mr Morgan, investigated potential claims arising from this transaction.

Issues

The liquidator sought a pooling order under section 579E(1)(b)(iv) of the Corporations Act. That provision requires that "particular property" is "used … in connection with a business … carried on jointly by the companies."

The liquidator's position was that the "particular property" was a right to sue held by SAP and SAM to recover the $330,000 amount, and that this right was used in connection with the joint business carried on by the two companies.

Decision

The High Court unanimously dismissed the liquidator's appeal. The pooling order was refused.

The Court held that the gateway requirement in section 579E(1)(b)(iv) was not satisfied. The "use" of property must have a "direct and substantial connection" to the joint business previously carried on by the companies. The alleged right to sue arose from the disposal of the business, not from the carrying on of the joint business between SAP and SAM.

The Court noted that section 579E(1)(b)(iv) does not require joint ownership of the property — unlike section 579E(1)(b)(iii). SAP and SAM likely held separate (not joint) claims. However, the claims still lacked the requisite connection to the prior joint business.

The proceeds of the sale of a business cannot be said to have a sufficient connection to the carrying on of that business for the purposes of section 579E(1)(b)(iv).