Our client was appointed by the Supreme Court of NSW as receiver
to a company Painaway, which marketed and sold "Painaway"
branded products. The products included temporary pain relief
creams and sprays which were very successful, particularly due to
their promotion in the boxing industry, including by Danny
Our client, the Receiver, was appointed as a result of a
shareholder dispute, which eventually resulted in one director
locking the others out of the company's warehouse. One
shareholder applied to the Supreme Court for the company to be
placed into liquidation based upon the "just and equitable
ground" provided for in the Corporations Act. The other
shareholders then applied for a court appointed receiver and a
buyout order. The receivership was ordered by consent as an interim
measure. The related winding up and buyout proceedings were then
adjourned from time to time, whilst the events below unfolded.
The Receiver's initial concern was that Painaway's
rights to make, market and sell the Painaway product were
Our investigations revealed that a shareholders agreement and an
exclusive licence for Painaway to manufacture, market and
distribute the Painaway products (IP Licence) had been prepared by
a lawyer acting for all parties. The licence agreement had a
provision allowing for its termination upon on a court ordered
liquidation. Neither agreement was ever signed by all the parties,
since at the time of the finalisation of the agreements, the
Painaway company and some of the shareholder companies had not been
incorporated. The agreements were signed by the promoters and IP
holder and then were put to one side whilst the incorporations
occurred. The parties then forgot about signing the agreements
after the incorporations. The enforceability of the agreements was
therefore an issue. The agreements' terms also had various
Key intellectual property, including Painaway trade mark
registrations were owned by a shareholder's company. That
shareholder objected to the Receiver selling Painaway products.
Substantial stock on hand was also unable to be sold by the
Receiver, as that same shareholder's related entity, who
conducted the Theraputic Goods Act compliance role for the
products, froze their sales. They alleged there were faulty
Painaway products on hand and on the retailer's shelves. This
meant the Receiver had to obtain an expert's report on that
The existence of these legal issues meant that their quick
determination by the Court was required, or the company might lose
all its value.
Due to the inability to continue to make sales of Painaway
products, the company was likely to be insolvent. Our client, the
Receiver, therefore approached the Court to have the receivership
terminated and him appointed as the provisional liquidator of
Painaway. We obtained that order and then immediately sought and
obtained the Court's leave for our client to be appointed a
voluntary administrator, along with one of his partners, to seek to
rehabilitate the company. This provided greater flexibility in
dealing with the company's assets than a traditional
liquidation and allowed for the IP Licence to remain current.
We also obtained Court ordered extensions of the
"convening period" for calling the required
second creditors meeting, to allow the Court to determine the
dispute before the company's fate was decided at that
We then commenced litigation to determine Painaway's rights
to market, manufacture and sell Painaway products. Thankfully the
litigation moved very quickly. Part way through the hearing, by
agreement, Painaway sales recommenced and gave the company a
regular cashflow again.
The litigation was decided in favour of the company: In the
matter of Painaway Australia Pty Ltd (in prov liq)(admin
apptd)  NSWSC 205.
This decision allowed a Deed of Company Arrangement (DOCA) to be
formulated by one shareholder, which was then agreed to by
Painaway's creditors. A 100 cents in the dollar return resulted
for Painaway's creditors.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
We discuss whether certain clauses commonly found in ordinary commercial contracts could be considered to be penalties.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).