CATCHWORDS CORPORATIONS - Winding-up - application for an order under s 548(2) of the Corporations Law resolving the difference between the Committee of Inspection appointed by a meeting of creditors of the company and the Committee of Inspection appointed by the contributory of the company - approach Court should take in determining matters arising under s 548(2) of the Corporations Law - whether contributories should be represented on Committees of Inspection. Corporations Law - s 548(2) Re Radford & Bright Limited (1901) 1 Ch D 272 RE: GEOFFREY RALPH JAMES; In the matter of COWRA PROCESSORS PTY LIMITED (In Liquidation) No. NG 3319 of 1995 FOSTER J 28 JULY 1995 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA) ) NEW SOUTH WALES DISTRICT REGISTRY) No. NG 3319 of 1995 ) GENERAL DIVISION ) RE: GEOFFREY RALPH JAMES Applicant IN THE MATTER OF: COWRA PROCESSORS PTY LIMITED (In Liquidation) (ACN 061 216 546) JUDGE MAKING ORDERS: FOSTER J DATE: 28 JULY 1995 PLACE: SYDNEY MINUTE OF ORDERS THE COURT ORDERS THAT: 1. The Committee of Inspection appointed by the creditors of Cowra Processors Pty Limited (In Liquidation) on 19 December 1994, be the Committee of Inspection appointed in relation to the winding-up of Cowra Processors Pty Limited (In Liquidation). 2. The applicant's costs of this application be paid out of the assets of Cowra Processors Pty Limited (In Liquidation). Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA) ) NEW SOUTH WALES DISTRICT REGISTRY) No. NG 3319 of 1995 ) GENERAL DIVISION ) RE: GEOFFREY RALPH JAMES Applicant IN THE MATTER OF: COWRA PROCESSORS PTY LIMITED (In Liquidation) (ACN 061 216 546) CORAM: FOSTER J DATE: 28 JULY 1995 PLACE: SYDNEY REASONS FOR JUDGMENT (Extempore) HIS HONOUR: This is an application under s 548(2) of the Corporations Law. The application is brought by the liquidator of Cowra Processors Pty Limited (In Liquidation) ("Cowra Processors"), Geoffrey Ralph James. He seeks the following substantive order: "An order pursuant to s 548(2) resolving the difference between the Committee of Inspection appointed by the creditors of the company on 19 December 1994 and the Committee of Inspection appointed by the contributory of the company on 20 February 1995." Section 548(2) provides as follows: "If there is a difference between the determination of the meeting of creditors and the determination of the meeting of contributories, the court may resolve the difference and make such order as it thinks proper." I have before me affidavit material indicating the background to the problem which has arisen in relation to the Committee of Inspection and in respect of which the order under s 548(2) is sought. It appears from the material that the sole contributory to Cowra Processors is a company, Mount Erin Pacific Limited ("Mount Erin"). Until his resignation on 31 October 1994, one of the directors of Mount Erin was a Mr Brian Kelly who was also the Managing Director of Cowra Processors. The only other director of Cowra Processors was Roxanne Elizabeth Kelly, Mr Kelly's wife. It also appears from the affidavit material that Mr Kelly is a substantial shareholder in Mount Erin, and is a beneficiary of the Kelly Family Trust which has a registered charge over Mount Erin's assets. Matters of concern to the applicant in relation to the Committee of Inspection appointed by the contributory are set out in the affidavit of David James Brown, an employee of Ernst & Young Chartered Accountants who is assisting the applicant in the winding-up of Cowra Processors. A particular concern to the applicant is that the Committee of Inspection may be required to give directions as to: "the recovery of unfair preferences from Mount Erin as part of a continuing business relationship paid within the six months prior to the Administrator's appointment in the sum of $1,093,776.34 pursuant to section 588FE of the Corporations Law." The Committee may also be required to give directions as to the recovery of substantial sums of money from Mr Kelly, as a former director of Cowra Processors. The section under which this application is made is one of some antiquity, but I have been advised by counsel for each of the parties and on behalf of the Australian Securities Commission, as amicus curiae, that the section has been rarely used. Indeed, the cases I have been taken to in the course of submissions apply to the section in an earlier form and are dated at the beginning of this century. In reaching my conclusion in this case, it is unnecessary for me to refer to those early decisions, except, perhaps, to note from the decision in Re Radford & Bright Limited (1901) 1 Ch D 272 at 277, the comments of Wright J that: "It would be undeniable that great hardships might arise if a very large creditor were to be excluded from all representation on a committee of inspection." Although recognising that the Court had no express power to interfere with the composition of a validly appointed Committee of Inspection, Wright J clearly indicated that, in exercising its general powers in relation to winding-up, the Court should have regard to influencing the composition so that no creditor or class of creditors with a substantial interest is excluded from the representation it seeks. Counsel for the applicant has advised me that the Committee appointed by the creditors of Cowra Processors on 19 December 1994 comprises a reasonable spread of creditors of all sizes. This matter is perhaps of peripheral importance to the question I have been asked to decide, but as it has been raised, I note that the Committee appointed by the creditors is representative of the interests of all sizes of creditors. The real question for decision is whether a representative of the sole contributory should be included on the Committee of Inspection. The inclusion of such a member is supported by the affidavit of Mr Kelly. The affidavit has not been filed in these proceedings, but its content has been placed before me in the form of a facsimile forwarded today from Mr Kelly's residence in New Zealand. I have already adverted to a significant issue in relation to this question. That is, that the Committee of Inspection may well be called upon to consider whether recovery proceedings should be taken against Mount Erin and perhaps against Mr Kelly personally. It would clearly be a situation of some difficulty to have present at the deliberations of the Committee a representative of the contributory, when discussions are being directed to the potential taking of proceedings against the contributory. In such circumstances of course, the representative could not take any part in the discussions. However, it is not difficult to envisage that the presence of the representative would, to a large extent, be disruptive of the smooth operations of the Committee. There is also a significant issue in relation to the financial situation of Cowra Processors. The affidavit of David James Brown filed in Court today indicates that, even if there is a recovery of the alleged preferential payments made to Mount Erin, there will still be a return to creditors of less than 100 cents in the dollar. This means that there is no prospect of any return to Mount Erin as sole contributory. It was submitted on behalf of the Australian Securities Commission, as amicus curiae, that if there is certain to be a net deficit of realisable assets at the completion of the winding-up then, all other matters being equal, all members of the Committee should represent creditors. Conversely, if a net surplus is likely, then it is reasonable to expect that contributories should have a fair representation on the Committee. I accept this submission as a reasonable and sensible approach which the Court should take in determining matters arising under this section. In my view, it is determinative of the present application that Mount Erin cannot hope to receive any return from the liquidation of Cowra Processors. Consequently, quite apart from the other matters of difficulty that I have mentioned, there is no real basis for the claim that a representative of Mount Erin should be included on the Committee. Accordingly, I make an order resolving the difference between the Committee of Inspection appointed by the creditors of the company on 19 December 1994, and the Committee of Inspection appointed by the contributory of the company on 20 February 1995, by ordering that the Committee appointed by the creditors of the company on 19 December 1994, be the Committee of Inspection appointed in relation to this winding up. I make an order that the applicant's costs of this application be paid out of the assets of the company. I certify that this and the preceding five (5) pages are a true copy of the reasons for judgment herein of the Honourable Justice M. L. Foster. Associate: Date: 28 JULY 1995 A P P E A R A N C E S COUNSEL FOR THE APPLICANT: M.R. ALDRIDGE COUNSEL FOR THE CONTRIBUTORY: I. McLEARY COUNSEL FOR THE AUSTRALIAN SECURITIES COMMISSION (AMICUS CURIAE): S.P. COPPOCK DATE OF HEARING: 28 JULY 1995 DATE OF JUDGMENT: 28 JULY 1995