FEDERAL COURT OF AUSTRALIA LIBRARY DRAFT JUDGMENT ADELAIDE FEDERAL COURT OF AUSTRALIA Matter No SG 3184 of 1995 By O'LOUGHLIN J MULVANEY vy WINTULICH ADELAIDE, 29 SEPTEMBER 1995 HIS HONOUR: I have before me an urgent application in the matter of Wintulich Pty Limited which I will herein after refer to as, "the company." I order that the time for service of the application be abridged. The substantive orders sought in the application is that each of the respondents, being Rob Wintulich Pty Limited, Trebor Pty Limited, Frank Walter Wintulich and the Estate of Thelma Lillian Wintulich, do and be commanded to carry out their obligations pursuant to the terms of the deed company arrangement referred to in the affidavit of Bruce Neil Mulvaney _sworn the 27th day of September 1995. I tum to the affidavit of Mr Mulvaney in which he states that he is a chartered accountant and that on 4 July 1995 the directors of the company appointed him as administrator to its affairs pursuant to part 5.3(a) of the Corporations Law. The report of the directors showed an estimated deficiency of $400,000. Meetings of creditors as required part 5.3(a) of the Corporations Law have been held and at that second meeting a draft deed of company arrangement was presented to the creditors. It will be necessary for me shortly to refer to the specific term of the deed of company arrangement. For the moment I will continue, however, to outline the results of the meeting. mulwinJ 29.9.95 1 A resolution was moved and seconded and accepted by the sufficient majority of the creditors that the company execute a deed of company arrangement the terms of which are to reflect the intent of the draft deed of company arrangement tabled at this meeting. One of the terms of the deed of company arrangement, clause 3(b)(i) is central to and indeed the cause of the application before the court. Shortly stated it requires all of the shareholders of the company to transfer their shares for a nominal consideration of a total of $1 to the administrator or as he may direct. AsI understand it the purpose behind this is to accommodate a group of investors who intend to endeavour to get the company back on its feet, so to speak, and to trade out of its difficulties. T accept for the purpose of these reasons that the concept of the shareholders so disposing of their shares was placed before the meeting and accepted as a term of the deed of company arrangement by the meeting of creditors. Arguments have now arisen within the ranks of the shareholders. Mr John Wintulich and those who are within his group are intending to comply with the spirit of clause 3(b) of the deed of company arrangement. Mr Robert Wintulich, the brother of John Wintulich, another director of the company and those within his group are now claiming that they never intended to be consenting parties in the terms contemplated by clause 3(b). It is of course impossible for me to investigate which of these versions of mulwinJ 29.9.95 2 competing facts is the correct version. Nevertheless for the reasons which I will mention I intend to proceed upon the premise that Mr Robert Wintulich and those within his group of shareholders were consciously involved in the terms of the deed of company arrangement for the purposes of assessing what if any orders could be made in those circumstances. Part 5.3(a) of the Corporations Law is, relatively speaking, new. Many of its provisions have yet to be tested. The particular provision upon which the applicant, Mr Mulvaney, in his capacity as administrator of the company, is relying, is section 444G of the Corporations Law. It is entitled, "Effect of deed on company officers and members," and it states: Deed of company arrangement also binds, (a), the company and, (b), its officers and members and, (c), the deed's administrator. Arguably that section, if read literally, would mean that the deed would have a binding effect upon the shareholders of the company including the sentient shareholders and absent shareholders who were unaware of and had no part to play in the compilation and the presentation of the deed of company arrangement. That interpretation, the so-called literal interpretation, must however be assessed by having regard to the totality of part 5.3(a) and by considering the answer to the question: what is it to which part 5.3(a) is directed? That answer in part is found in section 435A which states: mulwinJ 29.9.95 3 The object of the part is to provide for the business property and affairs of an insolvent company to be administered in a way that, (a), maximises the chances of the company or as much as possible of its business continuing in existence, or, (b), if it is not possible for the company or its business to continue in existence, results in a better return for the company's creditors and members than would result from an immediate winding up of the company. There, in addition to section 444G is a reference to the members of the company. Another reference to which Mr Wilkinson, counsel for the applicant, referred, is to be found in schedule 8A of the regulations in paragraph 2, sub-paragraph (z)(c). That paragraphs states that: The powers of the administrator include the power to enter into and complete any contract for the sale of shares in the company. It would therefore seem that to a certain degree - and the question is the extent of that degree - members are to be bound by the terms of a deed of arrangement even though the very nature of a deed of arrangement is one between the company and fundamentally its creditors to alleviate it from the financial burdens of its insolvency. I come back then to the critical question: how is section 444G to be interpreted? Is it to be interpreted literally so that a dissenting or absent mulwinJ 29.9.95 4 shareholder finds himself or herself bound by the terms of the deed of company arrangement. In my opinion the statutory enactment to the effect that a deed of company arrangement binds the members of a company cannot be read in this literal fashion. It must be read with some measure of constraint. It cannot, in my opinion, mean, for example, that a dissenting shareholder can be forced to do something to his or her detriment. It cannot, in my opinion, mean that his or her shares can be confiscated for no consideration or for no adequate consideration. In my opinion its meaning must be limited to a form of restraint which prescribes conduct on the part of the shareholder which in normal circumstances would be permissible, but which is now prevented because it is contrary to or counter-productive of the terms of the deed of company arrangement. Examples that come to mind could extend to restraints on voting rights, restraints on transfers of shares if for some sound reason those rights might be subject to competing terms of a deed of company arrangement, but I do not think that the deed and its contents can be used in the manner in which the parties would wish me to order its use today. I have assumed that Mr Robert Wintulich and those within his group did agree to participate in the manner that has been suggested by the applicants. That does not however, short of their signature in an appropriate fashion, mean that they are bound by the terms of the deed. It may mean that they have committed a breach of some contract for which mulwinJ 29.9.95 5 they may be liable in damages. I express no opinion on that other than to say that it is not a cause which is before me today nor is it one upon which I can express any comment. Yesterday during the course of submissions Mr Wilkinson pointed that there were decided advantages to the shareholders in participating in the deed of company arrangement. He mentioned the fact that guarantees given by Mr John Wintulich and Mr Robert Wintulich would be discharged in return for the participation in the deed of company arrangement. As I understand it the events of today could mean that those deeds of guarantee will not now be discharged. Again that could give rise to another cause of action but it is not a matter upon which I can express any concluded view. My view is limited to the purpose and effect of section 444G of the Corporations Law. Insofar as it claims that it binds the members of the company I do not consider that it is to be interpreted as binding members to transfer their shares for virtually no consideration against their will. That concludes my reasons. RECORDED : NOT TRANSCRIBED HIS HONOUR: I order that the applicant pay the respondent's costs to be taxed in default of agreement. mulwinJ 29.9.95 6