In the Matter of Firbank Arch Pty Ltd (Administrator Appointed (Subject to Deed of Company Arrangement)); Metrobuild Constructions Pty Ltd v Edge, Robert John [1998] FCA 344

FEDERAL COURT OF AUSTRALIA

CORPORATIONS LAW - interlocutory relief - whether the Administrator of the company should be restrained from making payments to admitted creditors - whether the Deed of Company Arrangement should be suspended until applicant's claim determined - whether the administrator should pay into Court the applicant's claim with interest and costs. Corporations Law s 447A Wood v Laser Holdings Ltd & Ors (1996) 14 ACLC 801-811 Appl In the Matter of Firbank Arch Pty Ltd (Administrator Appointed (Subject to Deed of Company Arrangement) and Metrobuild Constructions Pty Ltd and Robert John Edge QG 3005 of 1998 Kiefel J Brisbane 6 April 1998

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY QG3005 of 1998

IN THE MATTER OF FIRBANK ARCH PTY LTD (ADMINISTRATOR APPOINTED (SUBJECT TO DEED OF COMPANY ARRANGEMENT))

between: METROBUILD CONSTRUCTIONS Pty Ltd

APPLICANT

AND: robert john edge

Respondent

JUDGE(S): KIEFEL J

DATE: 6 APRIL 1998

PLACE: BRISBANE

REASONS FOR JUDGMENT EX TEMPORE The applicant, Metrobuild Constructions Pty Ltd, claims to be owed moneys by Firbank Arch Pty Ltd a company presently subject to a Deed of Company Arrangement which however might conclude shortly, on 17 April next, when it is proposed to pay out all unsecured creditors save for Metrobuild whose debt is disputed. Metrobuild has lodged an appeal with respect to that rejection. The dispute between the companies is not recent. It concerns construction works at Firbank's resort at Palm Cove in North Queensland, said to have been completed by late June 1996. Metrobuild claimed a sum in the order of $298,000 which included retention monies of some $76,000. Those retention monies will remain available to meet that part of its claim. The balance of its claim relates to variations and includes a substantial claim based upon delay. Firbank Pty Ltd, in turn, claims that there were faults requiring rectification and penalties for delay, and says that its claim against Metrobuild Pty Ltd exceeds that of Metrobuild by some $150,000. Notice of Metrobuild's claim under the building contract was given on 1 April 1997. By the time the Administrator was appointed, on 15 August 1997, no negotiations had however taken place and Metrobuild Pty Ltd, at least, was preparing for litigation. An Administrator was appointed by the directors of Firbank in part because it was considered the company might become insolvent. The performance of its then manager and effects on its cash flow were in question. Meetings of its creditors took place in August and September 1997, the latter being adjourned to October and again on 10 November 1997 when it was resolved that a Deed of Company Arrangement be entered into. Such a deed was executed on 1 December 1997. The Deed of Company Arrangement dealt with unsecured creditors, other arrangements having been effected by the company with secured creditors. Its purpose was stated as one to enable the company to continue to operate the resort and achieve a return of 100 cents in the dollar to unsecured creditors. Subject to extension, Firbank was obliged, by clause 11, to pay "the Debt", which is defined as all admitted debts to unsecured creditors, to the Administrator within 60 days. The Administrator was then to apply all property including such moneys to meet those debts. The amounts admitted by the respondent Administrator were in the order of some $458,000 excluding Metrobuild's claim and sums to which the company's unit-holders would be entitled by way of repayment of advances. It seems clear enough that it was the unit-holders' funds, by way of loan to the company, which enabled the company to pay the admitted debts. Metrobuild's debt was rejected on 17 February 1998. Metrobuild seeks orders restraining the Administrator from making the payments to the admitted creditors or to suspend the Deed of Company Arrangement until its claim is determined. That may take some time. The claim itself is likely to take two weeks for hearing. An injunction sought with respect to the retention moneys is unnecessary. The only other, alternative, order sought would require the Administrator to pay into Court, from moneys in his hands or coming into his hands in the course of the administration, the whole of the applicant's claim together with interest and costs. Arrangements have now been made for the appointment of another, experienced, manager of the resort. Its participation depends upon the company being free of administration. The cost of continuing the administration is also pointed to by the Administrator as a reason why it ought not be required so as to enable Metrobuild to prove its debt. With respect to each of the claims for relief, the answer lies in the balance of convenience, and in particular to Metrobuild's exposure to harm. So far as concerns the injunctive relief sought, which would require the continuation of the Deed of Company Arrangement, the balance of convenience would not favour Metrobuild. There is, I consider, no good reason to risk the company's future and the payment to all of the other creditors on the prospect of litigation where there are cross-claims of the size and nature referred to above. The possibility that Metrobuild might suffer harm because of the terms of the Deed of Company Arrangement relating to extinguishment of claims was also dealt with in argument. There is a real question, I consider, that Firbank's liability to it may be affected by those provisions. Here, as Mr O'Shea for the respondent points out, the Court's powers under s 447A Corporations Law could be utilised to except Metrobuild from the operation of the deed in that respect. That section provides that: "The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company". The width of this power, which includes a power to make an order subject to conditions - see subsection 3 - has been the subject of some judicial comment (see the cases collected in Wood v Laser Holdings Ltd and Ors (1996) 14 ACLC 801-811). The only question which remains is as to whether there ought to be an order setting aside a fund to meet Metrobuild's claim in the event that it is proved. An order in the terms sought cannot be made since the Administrator, under the terms of the Deed of Arrangement, does not receive any monies other than those paid by Firbank to meet admitted debts and his remuneration. That leaves the possibility of Firbank being obliged to provide the funds. It is unnecessary, on the view I have taken, to consider the source of such a power. A company would not ordinarily be ordered to provide, in effect, security for a claim where it was proposing to continue to trade and where it could not be said to be at risk of being unable to meet its debts in the future. In that latter respect, it may be observed that the Deed of Company Arrangement was effected to deal with a perceived problem, in the short-term, with liquidity. Firbank's assertions, that it ought to be able to trade more profitably in the future are not, and could not be, the subject of real challenge. In terms of Metrobuild's exposure to risk, the question which seems to me to arise is as to whether its position is significantly different, following upon the Deed of Company Arrangement, from its position before. The only difference I can discern is that the company has had advanced to it further sums, to enable the payments to be made to the admitted unsecured creditors. It will be liable to repay its unit-holders in due course. The unit-holders made those advances to secure their investments. Given the arrangements effected to date the interests of those involved in the company will clearly lie in its continuation which, if necessary, may mean meeting a claim by Metrobuild which, it must be noted, whilst substantial is not great. The claim by Metrobuild is one to be entitled to share in the arrangement effected by the company and its other creditors funded, in reality, by the unit-holders. The case put by Metrobuild was, indeed, one of discrimination which, it was submitted, was what the provisions of the Corporations Law relating to Deeds of Company Arrangement sought to avoid. I cannot, however, discern any such overriding purpose or intention. In the context of short-term Deeds of Company Arrangement, a disputed debt which requires more than a simple adjudication must necessarily give rise to situations such as this. The power under s 447A is a wide one which I consider can be used to discriminate with respect to particular corporations in circumstances such as this. The payments under the Deed of Company Arrangement are not made by way of some final distribution. Once one accepts that what is provided for in the Deed of Company Arrangement ought not to be postponed, the only question is what basis exists to require Firbank to secure the position of a company whose claim to a debt is the subject of a real dispute and is said to owe Firbank more. Metrobuild has not shown that the company's ability to meet its future liabilities has been significantly worsened by reason of its entry into and the payments to be made under the Deed of Company Arrangement. In these circumstances the only basis which there can be for the making of any such order is that Metrobuild ought to be protected because other creditors are being paid in full. That however overlooks the fact that their debts are not disputed and there is no doubt that they are entitled to all they claim. There was no arrangement made between the company and the creditors which required disputed debts to be secured or resolved. The application for interlocutory relief will be refused. There remains the question as to whether, in the context of the provisions for company arrangement shortly being concluded, these proceedings will continue, and I will hear submissions as to that and the outstanding motion filed by the respondent for change of venue. There will be orders that the applicant's application for interlocutory relief be dismissed and an order under s 447A as outlined. I adjourn the hearing for further orders and directions to 9.30am on Thursday 9 April next.