FEDERAL COURT OF AUSTRALIA Deputy Commissioner of Taxation v Strongest Link Pty Limited [2005] FCA 1920 DEPUTY COMMISSIONER OF TAXATION v STRONGEST LINK PTY LIMITED NSD 2085 OF 2005 EMMETT J 20 DECEMBER 2005 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD2085 OF 2005 BETWEEN: DEPUTY COMMISSIONER OF TAXATION PLAINTIFF AND: STRONGEST LINK PTY LIMITED DEFENDANT JUDGE: EMMETT J DATE OF ORDER: 20 DECEMBER 2005 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The winding-up application be dismissed. 2. The defendant pay the plaintiff's costs of the application, including all reserved costs. 3. The proceeding be stood over to 2:30pm on Friday, 23 December 2005. 4. Orders 1 and 2 be stayed until 3pm on Friday, 23 December 2005 or, if the creditors resolve at the creditors' meeting convened for 23 December 2005, that the company execute a deed of company arrangement or that the company be would up, until the completion of that meeting. 5. The defendant inform the Associate to Emmett J of the result of the creditors' meeting as soon as possible. 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 NSD2085 OF 2005 BETWEEN: DEPUTY COMMISSIONER OF TAXATION PLAINTIFF AND: STRONGEST LINK PTY LIMITED DEFENDANT JUDGE: EMMETT J DATE: 20 DECEMBER 2005 PLACE: SYDNEY REASONS FOR JUDGMENT 1 On 29 November 2005, Mr Robert Colin Parker ('the Administrator') was appointed administrator of Strongest Link Pty Limited ('the Company'). However, at the time of appointment of the Administrator there was a proceeding on foot in the Court, in which the Deputy Commissioner of Taxation ('the Deputy Commissioner') applied for the winding-up of the Company. That application was to be heard on 2 December 2005. 2 At the first hearing of the application for winding-up the proceeding was adjourned, by consent, to 16 December 2005. At the first meeting of creditors following the appointment of the Administrator, which was held on 6 December 2005, no alternative administrator was appointed, nor was a committee of creditors appointed. Under the Corporations Act 2001 (Cth) ('the Act'), the Administrator is required to convene a second meeting of creditors, which is to be held on 23 December 2005. 3 The matter was referred to me as Corporations Duty Judge on 16 December 2005. On that occasion I adjourned the hearing of the winding-up application to today to enable the Administrator and the Company, if so advised, to file further evidence in support of an application under s 440A(2) of the Act. Under that provision, the Court is to adjourn the hearing of an application for an order to wind-up a company if the company is under administration and the Court is satisfied that it is in the interests of the Company's creditors for the Company to continue under administration, rather than be wound-up. 4 The evidence presently before me is not entirely satisfactory. It indicates specifically that the Company is a party to two contracts with Westfield Limited ('Westfield'). One contract concerns cable rectification works at Sydney Tower and the other involves spire repair work. The first contract is substantially completed, in the sense that approximately 70 per cent of the work has been done by the Company. Work on the second contract has not yet begun 5 The evidence of the Administrator is that he has formed the view that, if the Company were to go into liquidation immediately, the likely return from the first Westfield contract would be in the vicinity of $120,000. While some $318,000 is presently owed by Westfield, Westfield has intimated that it would claim penalties from the Company both in respect of that contract and the second contract. However, if the Company completes the first contract, it will not claim penalties. 6 The administrator accepts the estimate of the only director of the Company that the cost of the work necessary to complete the first Westfield contract is $181,000. Upon completion, the total amount payable by Westfield would be in the vicinity of $520,000. It follows that the amount that would be available for creditors if the contract is completed and penalties are not claimed by Westfield would be in the order of $340,000. To that extent, if those assumptions were made good, it would be in the interests of the creditors for the administration to proceed, to enable the Company to complete the work with Westfield. 7 The Administrator has proposed a deed of company arrangement, which he informs the Court would be supported by the only director and shareholder of the Company. The director has not yet given any evidence before the Court to indicate what his attitude would be, although the Administrator, in his evidence, indicates that he understands that the director will support the proposal. One difficulty with the draft deed that has been put before the Court is that it does not make entirely clear that the whole of the proceeds from the current Westfield contract, after bearing the costs of completing it, would be available for present creditors. That is ultimately a matter for the Company and its director to persuade the creditors about at the creditors' meeting convened for Friday, 23 December 2005. 8 Having regard to the time of year and the complication that both the Administrator and director of the Company are resident in Adelaide, I have concluded that it is in the interests of the creditors for the Company to continue in administration, at least until after the creditors have had a chance to consider any proposed deed at the meeting that has been convened for 23 December 2005. The Deputy Commissioner, as applicant, has indicated that there would be no real prejudice to the Deputy Commissioner by an adjournment of the winding-up application until next Friday. On the other hand, it would be undesirable that further costs be incurred in relation to the proceeding. 9 The Company accepts that, unless the creditors resolve that the administration should come to an end, the appropriate order would be for the winding-up application to be dismissed, with an order that the Company pay the Deputy Commissioner's costs. The Deputy Commissioner, on the other hand, has indicated that, if the creditors did resolve that the administration come to an end, then she would wish to pursue the winding-up application. I therefore propose to stand the proceeding over to Friday, 23 December at 2.30 pm. 10 I propose to order that the winding-up application be dismissed and that the Company pay the Deputy Commissioner's costs, including reserved costs. However, I propose to stay those two orders until 3.00 pm on Friday or, if the creditors resolve that the Company execute a deed of company arrangement or resolve that the company be wound-up, then, upon the completion of the creditors' meeting. . I certify that the preceding ten (10) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett. Associate: Dated: 23 December 2005 Solicitors for the Plaintiff: Hunt & Hunt Counsel for the Defendant: Mr J E Thomson (16 December 2005) Solicitors for the Defendant: Camatta Lempens Date of Hearing: 16 and 20 December 2005 Date of Judgment: 20 December 2005