FEDERAL COURT OF AUSTRALIA Teleminex No Liability, in the matter of Teleminex No Liability [2005] FCA 705 TELMINEX NO LIABILITY NSD743 OF 2005 EMMETT J 13 MAY 2005 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD743 OF 2005 TELMINEX NO LIABILITY APPLICANT JUDGE: EMMETT J DATE OF ORDER: 13 MAY 2005 WHERE MADE: SYDNEY THE COURT: 1. grants leave to the Plaintiffs to file an originating process in the form initialled by Justice Emmett and dated with today's date, returnable instanter; 2. orders, pursuant to section 1322(4)(d) of the Corporations Act, that the period during which the second meeting of creditors in the voluntary administration of the Plaintiff must be held be extended up to 5 pm on 23 September 2004; 3. orders, pursuant to section 447A(1), that Part 5.3 of the Corporations Act is to operate in relation to the Company in relation to the voluntary administration that commenced on 26 August 2004 as if section 439A(2) required that the second meeting must be held within 6 business days of the end of the convening period, as referred to in section 439A(5). 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 NSD743 OF 2005 TELMINEX NO LIABILITY APPLICANT JUDGE: EMMETT J DATE: 13 MAY 2005 PLACE: SYDNEY REASONS FOR JUDGMENT 1 On 26 August 2004, Messrs Martin Russell Brown and Phillip Patrick Carter were appointed joint voluntary administrators of Telminex No Liability ('the Company'), pursuant to s 436A(1) of the Corporations Act 2001 (Cth) ('the Act'). Pursuant to s 436E(1), the administrators convened a meeting of the Company's creditors, in order to consider appointing a committee of creditors and who would comprise the committee's membership. Pursuant to s 436E(4), that meeting could have removed the administrators and appointed someone else as administrators of the Company. On 30 August 2004, the administrators convened a meeting of creditors, which was held on 2 September 2004. The meeting appointed a committee of creditors, but there was no proposal for removal of the administrators. 2 On 15 September 2004, the joint administrators sent a report to the creditors of the Company, in which notice was given that a second meeting of the creditors would be held on 23 September 2004. That meeting was purportedly convened pursuant to s 439A(1) of the Act, which provides that the administrators must convene a second meeting within the convening period, as fixed by s 439A(5). Section 439A(5) relevantly provides that the convening period is the period of 21 days beginning on the day when the administration begins. Under s 439A(2), the special meeting must be held within five business days after the end of the convening period. 3 While the notice was given within the time contemplated by s 439A, the meeting was not in fact held within five business days after the end of the convening period, which was 22 September 2004. Due to an error on the part of the administrators, in counting the number of business days after the end of the convening period, the meeting was inadvertently convened for 23 September 2004. 4 The administrators first became aware that the second meeting had been held outside the period referred to in s 436A(2), as a result of an internal quality control review by partners of the administrators. The administrators were notified of the problem at approximately 6 pm on 10 May 2005. As a consequence, steps were taken to bring this application before the Court seeking relief in respect of the oversight. 5 At the second meeting of creditors held on 23 September 2004, a resolution was passed that the meeting be adjourned for up to 14 days. On 29 September 2004, a supplementary report was sent to creditors by the administrators, notifying that the second meeting would be reconvened on 7 October 2004. At the reconvened meeting, the creditors resolved that the Company execute a deed of company arrangement, in terms specified in a statement accompanying the supplementary report. A large majority of the Company's creditors, in attendance at the meeting, supported the resolution that the Company execute a deed of company arrangement. No formal poll was taken, but no more than one or two persons, out of approximately 24, voted against the resolution. 6 On 27 October 2004, the administrators executed a deed of company arrangement on behalf of the Company. On 29 October 2004, the administrators sent a notice of execution of the deed of company arrangement to creditors. The deed of company arrangement provided for Marlborough Resources NL, the holding company of the Company, which is also the largest single creditor of the Company, not to prove as a creditor. The deed of company arrangement also provided for Marlborough Resources NL to pay into a fund, established pursuant to the deed, the sum of $512,500, in three tranches, on 5 November 2004, 14 December 2004 and 31 January 2005. Those payments have been made and the funds have been applied in payment of claims of employees of the Company and in payment of the only secured creditor of the Company. 7 The administrators have also realised the assets of the Company, including water rights, and real property, owned by the Company. The proceeds from the realisation of those assets, and other assets yet to be realised, will be paid into the deed fund. On the basis of the information presently available to the administrators, the unsecured creditors will be paid in the order of five to 18 cents in the dollar. 8 No creditor has raised, with the administrators, any issue concerning the failure to comply with s 439A(2) and the administrators have formed the view that no creditor would be prejudiced by making orders granting relief as claimed in this proceeding. On the other hand, there is the potential for considerable detriment to all involved if an order is not made. 9 Thus, by the operation of s 435C of the Act, the voluntary administration strictly ended on 22 September 2005, and the deed of company administration may not be effective. In the absence of the deed of company arrangement, the creditors would have no claim on the moneys paid into the deed fund by Marlborough Resources NL. Further, there would be nothing to prevent Marlborough Resources NL enforcing payment of the debt owed by the Company. 10 I am satisfied that the failure to hold the second meeting by 22 September 2004 was the result of an oversight, and that it is just and equitable that appropriate relief be granted. I am also satisfied that no substantial injustice has been, or is likely to be, caused to any person by reason of the failure and that there is not likely to be any prejudice or substantial injustice to any person by reason of the granting of relief as asked. The administrators have indicated to the Court that the costs of bringing this application will be borne by them and will not form part of the costs of the administration of the Company. 11 Section 13224D of the Act provides that, without limiting the generality of any other provision of the Act, the Court may make an order extending the period for doing with any act, matter or thing under the Act in relation to a corporation. Section 447A of the Act, which is contained in Division 13 at Part 5.3A of the Act, provides that the Court may make such order as it thinks appropriate about how Part 5.3A is to operate in relation to a particular company. 12 Part 5.3A is concerned with administration of a company's affairs, with a view to executing a deed of company arrangement. Section 439A(2) is contained within Part 5.3A. In the circumstances, I consider that it is appropriate to make an order that the period in which the second meeting of creditors of the Company must be held be extended up to 5 pm on 23 September 2004. Such an order would by authorised by s 13224D of the Act. 13 I consider that it is also appropriate to make an order, pursuant to s 447A(1), that Part 5.3 is to operate in relation to the Company, in relation to the voluntary administration that commenced on 26 August 2004, as if s 439A(2) required that the second meeting must be held within six business days of the end of the convening period as referred to in s 439A(5). I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett. Associate: Dated: 31 May 2005 Counsel for the Applicant: Mr Jeremy Stoljar Solicitor for the Applicant: Gilbert + Tobin Date of Hearing: 13 May 2005 Date of Judgment: 13 May 2005