FEDERAL COURT OF AUSTRALIA Silvia, in the matter of Tarpam Pty Limited (in Liquidation) ACN 075 433 537 [2006] FCA 776 BRIAN RAYMOND SILVIA IN HIS CAPACITY AS LIQUIDATOR OF TARPAM PTY LIMITED (IN LIQUIDATION) ACN 075 433 537 NSD2400 OF 2005 EMMETT J 31 MARCH 2006 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD2400 OF 2005 IN THE MATTER OF: BRIAN RAYMOND SILVIA IN HIS CAPACITY AS LIQUIDATOR OF TARPAM PTY LIMITED (IN LIQUIDATION) ACN 075 433 537 FIRST PLAINTIFF TARPAM PTY LIMITED (IN LIQUIDATION) ACN 075 433 537 SECOND PLAINTIFF JUDGE: EMMETT J DATE OF ORDER: 31 MARCH 2006 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Pursuant to s1322(4)(a) of the Corporations Act 2001 (Cth) ('the Act'), an order declaring that the second meeting of creditors held on 17 January 2002 and the adjourned second meeting held on 31 January 2006 are not invalid by reason of any contravention of s 439B(1) of the Act. 1. Costs of this proceeding be costs in the winding-up of the second plaintiff. 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 NSD2400 OF 2005 IN THE MATTER OF: BRIAN RAYMOND SILVIA IN HIS CAPACITY AS LIQUIDATOR OF TARPAM PTY LIMITED (IN LIQUIDATION) ACN 075 433 537 FIRST PLAINTIFF TARPAM PTY LIMITED (IN LIQUIDATION) ACN 075 433 537 SECOND PLAINTIFF JUDGE: EMMETT J DATE: 31 MARCH 2006 PLACE: SYDNEY REASONS FOR JUDGMENT 1 This application by Brian Raymond Silvia seeks orders under s 132(2)(iv) of the Corporations Act 2001 (Cth) ('the Act'), declaring that a meeting convened pursuant to s 439A of the Act was not invalid. On 14 December 2001, Mr Silvia was appointed administrator of Tarpam Pty Limited ('the Company'). He was appointed administrator by Trademart Limited, pursuant to s 436C of the Act. By that provision, a person who is entitled to enforce a charge on the whole, or substantially the whole, of a Company's property may, by writing, appoint an administrator of the company if the charge has become and is still enforceable. 2 Under s 436E of the Act, the administrator of a company must convene a meeting of the company's creditors to determine whether to appoint a committee of creditors. Such a meeting must be held within five business days after the administration begins. Such a meeting was held on 21 December 2001. Mr Silvia did not chair that meeting. Mr Andrew Cummins, who was then a senior manager of Ferrier Hodgson, a firm of which Mr Silvia is a director, chaired the meeting. Mr Cummins is now a director of Ferrier Hodgson and in 2001 was a very experienced senior manager. He was also a registered liquidator in his own right and assisted Mr Silvia in connection with the administration of the Company. 3 Under s 439A of the Act, Mr Silvia, as administrator, was required to convene a meeting of the Company's creditors within the convening period, as fixed by s 439A(5). Such a meeting was convened for 17 January 2002, which was within the convening period. 4 By s 439B, Mr Silvia, as the administrator, was required to preside at the meeting to be held on 17 January 2002. Mr Silvia did not do so. The reason was one personal to Mr Silvia, namely, the ill health of his life partner, who was undergoing private surgery on that day. Mr Silvia was concerned for her welfare and was not in the offices of Ferrier Hodgson where the meeting was to be held. 5 The meeting was, in fact, chaired by Mr Cummins who, by that stage, was familiar with the affairs of the Company and had had a considerable hand in the drafting of the report to creditors by Mr Silvia, dated 9 January 2002. According to the minutes of the meeting prepared and signed by Mr Cummins at the meeting held on 17 January, Mr Cummins introduced himself and advised the meeting that Mr Silvia was unable to attend and had authorised Mr Cummins to act as chairman. A copy of a purported authority was tabled for the inspection of creditors. Mr Silvia has sworn that he was not aware at the time of the effect of the terms of s 439B of the Act. He was unaware that, at least on one view of the proper construction of that section, it was not open to him to delegate the power to act as chairman. 6 Mr Cummins advised the purpose of the meeting and tabled the report of 9 January 2002. He informed the meeting that the report had been prepared without the assistance of the Company's directors, who had not responded to any attempts to communicate with them. Mr Cummins informed the meeting that, following the preparation of the report, the directors had contacted the administrator's office, indicating that they were then prepared to meet the administrator's staff. A meeting had been arranged for 22 January 2002. 7 Mr Cummins then proceeded to go through the report in detail, advising creditors of developments that occurred subsequent to the date of the report. After highlighting a number of matters raised in the report, Mr Cummins opened the meeting for questions from creditors. Amongst those present at the meeting by telephone was Mr Alan Johnson, representing Trademart Limited, the chargee that had appointed Mr Silvia as administrator. Mr Cummins responded to questions from those attending the meeting. 8 Mr Johnson also raised matters and responded to a claim that there was a conflict of interest arising from Mr Silvia's appointment. Mr Johnson explained that his company had used the Auckland office of Ferrier Hodgson on various occasions, but did not consider that there was any conflict. Mr Johnson proceeded to provide to the other creditors, background as to how Trademart Limited came to appoint Mr Silvia as administrator. There is nothing in the minutes to indicate that Mr Cummins was not able to provide creditors with all information that they required or was unable to respond to any matter raised at the meeting. 9 The meeting was adjourned to 31 January 2002 and was held on that day. Again, Mr Silvia did not chair or attend the meeting, which was again presided over by Mr Cummins. At that stage, Mr Silvia was still concerned for his partner's health, although he was in the office of Ferrier Hodgson for at least part of the day, such that it would have been physically possible for him to chair the adjourned meeting. However, because Mr Cummins had chaired the two previous meetings of creditors and had a good knowledge of its affairs and had been involved in the preparation of the report and a supplementary report to creditors of 23 January 2002, Mr Silvia did not see any prejudice to creditors if Mr Cummins chaired the adjourned meeting. 10 Mr Silvia has, in an affidavit sworn 2 December 2005 and filed in the proceeding, expressed his regret at his failure to preside over the meeting on 17 January 2002 as adjourned to 31 January 2002. He is satisfied that the intimate knowledge of Mr Cummins of the affairs of the Company, gained by reason of his involvement in the administration, enabled him to answer any questions that might have been put by creditors. The minutes of the meeting held on 31 January 2002 indicate that, although Mr Cummins opened the meeting for questions from creditors, no questions were raised by those present. 11 At the adjourned meeting, the creditors of the Company accepted Mr Silvia's recommendation set out in his report to creditors of 23 January 2002, that the Company be wound up. Accordingly, Mr Silvia became liquidator of the company on 31 January 2002 by the operation of s 446A(1)(a) of the Act. Mr Silvia then embarked upon the winding-up of the Company. As at the time of this application, that winding-up has been substantially completed. There has, however, been some antagonism to Mr Silvia's position from the former directors of the Company, Mr Maurice Derbyshire and Ms Pamela Derbyshire. 12 In the course of the winding-up, Mr Silvia has commenced and prosecuted two separate proceedings. In one, he commenced a proceeding against National Australia Bank pursuant to s 438D(2) of the Act. That proceeding resulted in a recovery from National Australia Bank of the sum of $22,000. Secondly, Mr Silvia commenced and prosecuted a proceeding against Mr Derbyshire and the trustee in bankruptcy of the estate of Pamela Derbyshire in relation to proofs of debt. The proceedings were ultimately settled on the basis that the trustee in bankruptcy of Mrs Derbyshire's estate admit proofs of debt in the sums of $64,708.89 and $70,291.11. Mr Silvia is currently awaiting receipt of a dividend from the trustee in bankruptcy. Upon receipt of that dividend, Mr Silvia will be in a position to declare a dividend in the winding-up and to pay creditors and to finalise the administration of the Company. 13 The failure to comply with s 439B of the Act was drawn to Mr Silvia's attention by Mr Derbyshire on 22 July 2005. Mr Silvia then became aware of views expressed in the Supreme Court of New Wales concerning the effect of s 439B(1). 14 There are, no doubt, good policy reasons why the administrator of a Company should be required to preside at a meeting of creditors convened to consider the administrators recommendation as to the future of the relevant Company. The administrator is required to make a report and recommendation to the creditors. That is intended to be a report by the individual administrator. The administrator should, therefore, be present personally to explain and answer questions as to those matters. The administrator, in certain circumstances, also has a casting vote. That is another reason why it would be desirable for the Act to provide that the administrator preside at a meeting. 15 Whatever the policy behind the provision might be, it is fairly unequivocal in providing explicitly that the administrator must preside at a meeting convened under s 439A. That did not happen and could have the consequence that the meeting was invalid or that a decision made at the meeting was not effective. Against the possibility of that consequence, Mr Silvia has made this application under s 1332(2) of the Act. By s 1332(4), the Court may, on the application by any interested person, make a number of orders including, relevantly, an order declaring that any act, matter or thing purporting to have been done or any proceeding purporting to have been taken under the Act or in relation to a corporation is not invalid by reason of any contravention of a provision of the Act. 16 However, under s 1332(4), the Court must not make an order under that provision unless it is satisfied that the act, matter, or thing or the proceeding is essentially of a procedural nature, or that the person concerned in or party to the contravention failed to act honestly, or that it is just and equitable that an order be made. In addition, the Court must also be satisfied that no substantial injustice has been or is likely to be caused to any person. The contravention of and failure to comply with s 439B involved action on the part of Mr Silvia, in circumstances where I am satisfied he acted honestly. It is also fair to conclude that the question involved is of a procedural nature. 17 I had before me evidence from the Australian Securities and Investments Commission, indicating that the Commission does not wish to be heard in relation to the present application. Neither National Australia Bank nor the trustee in bankruptcy of Mrs Derbyshire's estate wish to be heard in relation to the matter. I am not convinced that their position is relevant to the question of whether any substantial injustice has been or is likely to be caused to any person. There may be injustice, for example, if it were established that, had Mr Silvia presided at the meeting, some different course might have been taken. However, there is nothing in the material before me to suggest that, had Mr Silvia presided at the meeting, the creditors would have taken any different course. 18 Further, so far as the conduct of the meeting is concerned, I am satisfied that the creditors were given all information by Mr Cummins that they could expect or hope for from Mr Silvia. Mr Cummins was, it seems, as familiar with the affairs of the Company as was Mr Silvia. In those circumstances, I am satisfied that no substantial injustice has been or is likely to be caused to any person either by the failure to comply with s 439B or by the making of any order under s 1332(4) of the Act. In all of the circumstances, I consider that it is appropriate to make an order as claimed in the originating process. 19 I should add that leave has been given to Mr Derbyshire to appear on the hearing of this application. The matter was originally fixed for hearing last Friday. Mr Derbyshire indicated that he could not attend, because of ill health. He was informed of the hearing today, but did not appear when the matter was called. Mr Derbyshire has not made any submission or filed any evidence indicating that there was any prejudice to him as a director or shareholder of the Company by reason of the contravention of s 439B, in relation to the holding of the second meeting of creditors of the Company. I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett. Associate: Dated: 21 June 2006 Counsel for the Applicant: Mr JT Johnson Solicitor for the Applicant: Kemp Strang Date of Hearing: 31 March 2006 Date of Judgment: 31 March 2006