DCT v WOOMAX PTY LTD [2006] FCA 118

FEDERAL COURT OF AUSTRALIA

DCT v WOOMAX PTY LTD [2006] FCA 118 CORPORATIONS LAW – INSOLVENCY – application to wind up on ground of insolvency – leave granted to appear to a director of defendant/respondent corporation – consideration of a proposal to formulate arrangements for assets to be made available to satisfy debts – consideration of proposal to swap debts of the creditors for shares in a corporation – consideration of reports of administrators – exercise of discretion in the making of the order.

Corporations Act 2001, 459P

DEPUTY COMMISSIONER OF TAXATION v WOOMAX PTY LTD QUD 280 of 2005 GREENWOOD J 17 FEBRUARY 2006 BRISBANE

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY QUD 280 of 2005

BETWEEN: DEPUTY COMMISSIONER OF TAXATION

PLAINTIFF

AND: WOOMAX PTY LTD A.C.N. 086 485 690

DEFENDANT

JUDGE: GREENWOOD J

DATE OF ORDER: 17 FEBRUARY 2006

WHERE MADE: BRISBANE

THE COURT ORDERS THAT:

1. The Administration end.

2. WOOMAX PTY LTD A.C.N. 086 485 690 (now known as LOPTRAN PTY LTD) be wound up in insolvency under the provision of the Corporations Act 2001 (Cth).

3. Justin Denis Walsh be appointed Liquidator for the purposes of the said winding up.

4. The Plaintiff's costs of the application fixed in the sum of $983.40 be reimbursed as a priority out of the funds in the liquidation. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY QUD 280 of 2005

BETWEEN: DEPUTY COMMISSIONER OF TAXATION

PLAINTIFF

AND: WOOMAX PTY LTD A.C.N. 086 485 690

DEFENDANT

JUDGE: GREENWOOD J

DATE: 17 FEBRUARY 2006

PLACE: BRISBANE

EX TEMPORE REASONS FOR JUDGMENT DELIVERED AT 2.26PM 1 I have before me an application made under 459P of the Corporations Act 2001 by the Deputy Commissioner of Taxation for the winding-up of a company described in the proceedings as Woomax Pty Ltd, on the ground of insolvency. That company is now called Loptran Pty Ltd. The company was known as Woomax Pty Ltd for the period July 2004 to October 2005 and prior to that period the company was known as "The Black Ink Agency Pty Ltd". The company is the trustee of the Black Ink Unit Trust. 2 For present purposes, I will describe the company as Loptran. All steps required by the Corporations Act 2001 so as to enliven the power to make an order that Loptran be wound up in insolvency have been satisfied. 3 On the hearing of the application I gave leave to Mr Michael Norris, a director and secretary of Loptran, to appear on the hearing of the issues so as to speak to a proposal contained in a letter dated today by Media Corporation Australia Limited addressed to Mr J Walsh. The administrators of Loptran also appear and they abide by the order that might be made by the court, although they have expressed some observations arising out of preliminary investigations conducted in the administration and those remarks are contained in a preliminary report dated 15 February 2006, Annexure A to the affidavit of Justin Denis Walsh sworn 15 February. This morning, a further report became available dated 16 February, which is an update of those observations. 4 Mr Norris resists the making of a winding-up order on the basis that the parent company, Media Corporation Australia Limited, an unlisted public company which is the holding company for Loptran, has sufficient assets to discharge the debts of Loptran. A program of realising assets to provide sufficient net proceeds of sale to discharge those debts was to be undertaken. 5 The formulation of the proposal, as it has emerged today at approximately 1.00pm, involves a number of elements reflected in the letter dated 17 February 2006. I do not propose to record the elements of that proposal in these reasons, but suffice it to say that the core of the proposition is that radio station assets of Media Corporation Australia Limited would be vested by that company in a new company called NewRadio Pty Ltd, and the creditors of Loptran would be offered the opportunity to "swap" their debt of $2.5 million for a proportionate shareholding in NewRadio Pty Ltd based on NewRadio's asserted valuation of the radio station assets of $15 million. 6 Other elements are reflected in the letter. The creditors' shares so taken up in substitution or in swap for the debt would be a different class of share to those held by Media Corporation Australia Limited. The letter sets out the offers which would then be available to creditors who own these shares in NewRadio Pty Ltd, providing them with a chance to remain as long-term shareholders or sell their shares under a particular set of proposed arrangements. 7 That proposition has emerged today in support of the notion that the proposal will, firstly, inject some certainty into an earlier proposal raised yesterday before the District Deputy Registrar, and, secondly, that it will provide the creditors of Loptran with a threshold of certainty concerning their provable debts which would be in their interests, as opposed to or in comparison with the consequences for them of a winding up. On 15 February, Mr Walsh swore an affidavit in the proceedings. Mr Walsh, together with his partner, Mr Kieran Hutchison are the joint and several administrators of Loptran. 8 The annexed report of the administrators expresses a number of preliminary opinions arising out of investigations conducted by them. Some of those observations are these: "Preliminary investigations have indicated a deteriorating financial position for the company for sometime prior to our appointment. The main factors which, at this stage, indicate that Loptran may have been insolvent for potentially up to 12 months prior to our appointment are as follows." 9 The report then sets out 11 factors suggesting that the company has been insolvent for up to 12 months prior to 8 February 2006 - see page 11 of annexure A. Further, the administrators say: "It is our opinion that it is possible that, during the course of 2005, the director [Mr Norris], and the holding company, MCAL, should have had grounds to believe that Loptran could not continue to trade out of its present difficulties and may be liable to a claim for insolvent trading." - See page 11 of annexure A. 10 Further, the administrators say: "A preliminary review of the payments made by the company has identified a number of payments which may be considered as preferences. A preliminary review of the payments made by the company within the relevant period, that is six months prior to 18 August 2005, has indicated 15 potential unfair preferences with the potential total value of approximately $313,000, and a further 10 actions with a total value of approximately $264,000 identified for further investigation." - See page 12 of annexure A. 11 In addition, the administrators suggest that a liquidator would need to closely review all related party transactions with a view to determining whether those transactions are susceptible to remedial action and recovery by a liquidator. At section 9 of the report of 15 February, the administrators discuss the potential for a deed of company arrangement to be entered into which may provide the creditors with a better outcome that a distribution arising out of the winding up of Loptran. The administrators note that Mr Norris has indicated his intention to proceed with developing a proposal. However, at least as at 15 February 2006, no proposal for a deed of company arrangement had been submitted to the administrators. In fact, no proposal had been received from Mr Norris (until 1.00pm today): "… despite the fact that the winding up proceeding have been on foot since 18 August 2005." - See page 14 of annexure A at section 10. 12 Moreover, the administrators have not been provided with any information which indicates that Mr Norris has the financial capacity to implement any proposal: "… to inject a material amount of funds for the benefit of Loptran's creditors, although it may be that Mr Norris has the capacity to do so." - Also see section 10. 13 Since those observations were made in the report of 15 February, a more concrete proposal has emerged from Media Corporation Australia Limited, reflected in the letter of 17 February 2006, and a further supplementary report has been submitted dated 16 February. Mr Norris makes the observation that in the report of 16 February 2006, the administrators have said: "My investigations into Loptran's affairs are continuing. However, at this preliminary stage, it would appear that, if the proposal can be implemented, the return to creditors will be significantly higher under Mr Norris's proposal than if Loptran was wound up." 14 The elements of that proposal would need, of course, to come to fruition in a way which produced the outcomes which are foreshadowed in what is, after all, simply at the moment a letter of proposal addressed to Mr Walsh on behalf of the administrators. In the report of 16 February, there are further observations to the effect that: "There is, however, significant uncertainty surrounding Loptran's proposal and this issue is discussed further below." 15 The report continues: "Given that Mr Norris's proposal is at early stages of development, there is significant uncertainty as to whether it can be implemented. In particular, there is uncertainty as to whether MCAL has the ability to provide the funds under the DOCA." 16 DOCA is an acronym for "Deed of Company Arrangement". 17 The report continues: "The records available to me indicate that the claims of Loptran's creditors may amount to approximately $2.5 million. Accordingly, MCAL will need to provide sufficient funds to meet the claims of these creditors, plus the costs of the voluntary administration and the deed of company arrangement." 18 The proposal that is put before the Court now in relation to the matter has come very late in the day. I mention that matter only because it reflects - although no doubt there are commercial issues which would affect the urgency with which a proposal might be agitated - that the proposal has come late in the day after many, many months and to put the matter metaphorically, at five minutes to midnight, before the period expires within which a winding-up order might be made unless there is an extension. 19 In considering the question of whether I ought to extend the time, I am influenced by the fact that ultimately what I have before me, notwithstanding that Mr Norris says a great deal of effort has been dedicated in the last 24 hours to formulating a more concrete proposal, is simply a proposal by letter formulating a suggestion that certain assets might be vested in an entity and the creditors of the company, who are owed their debts in an insolvent circumstance might "swap" their debts for "shares" with consequential arrangements which might enable those shares to be realised in certain circumstances. I also note that the class of shares held by creditors will be different to those held by MCAL. 20 It seems to me that a proposition which ultimately involves creditors being invited to substitute their dollar value debts (provable debts) for a shareholding in a company ranking differently, having different classes of rights, and having no precise and documented formulation of the proposal is one which ought not, in the interests of the creditors generally, be accepted. Having regard to all of the matters in these Reasons, I am persuaded to the view that it is in the interests of the creditors that Loptran be wound up in insolvency. Accordingly, I propose to make the following orders: 1. The Administration end. 2. That Woomax Pty Ltd now known as Loptran Pty Ltd be wound up in insolvency under the provision of the Corporations Act 2001. 3. That Justin Denis Walsh be appointed liquidator for the purposes of the said winding-up.