Stephenson v ACN 000 007 492 Limited [2009] FCA 706

FEDERAL COURT OF AUSTRALIA

Stephenson v ACN 000 007 492 Limited [2009] FCA 706

AARON GEOFFREY STEPHENSON v ACN 000 007 492 LIMITED ROBERT WILLIAM JOSEPH ELLIOTT v ACN 000 007 492 LIMITED

NSD 1678 of 2008 NSD 186 of 2009

PERRAM J

18 JUNE 2009

SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY NSD 1678 of 2008 NSD 186 of 2009

BETWEEN: AARON GEOFFREY STEPHENSON

Applicant

AND: ACN 000 007 492 LIMITED

Respondent

AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY

Intervener

BETWEEN: ROBERT WILLIAM JOSEPH ELLIOTT

Applicant

AND: ACN 000 007 492 LIMITED

Respondent

AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY

Intervener

JUDGE: PERRAM J

DATE OF ORDER: 18 JUNE 2009

WHERE MADE: SYDNEY

THE COURT ORDERS THAT:

1. The Australian Prudential Regulation Authority be joined as a party to proceeding NSD 1678/2008. 2. The Australian Prudential Regulation Authority be joined as the second respondent to proceeding NSD 186/2009. 3. Leave be granted to APRA to file a cross-claim in the proceeding NSD 186/2009 in the terms provided to his Honour. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using eSearch on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY NSD 1678 of 2008 NSD 186 of 2009

BETWEEN: AARON GEOFFREY STEPHENSON

Applicant

AND: ACN 000 007 492 LIMITED

Respondent

AUSTRALIAN PRUDENTIAL REGULATION AUTHORITY

Intervener

BETWEEN: ROBERT WILLIAM JOSEPH ELLIOTT

Applicant

AND: ACN 000 007 492 LIMITED

Respondent

JUDGE: PERRAM J

DATE: 18 JUNE 2009

PLACE: SYDNEY

REASONS FOR JUDGMENT 1 There are before the Court two proceedings. The first is a proceeding brought by Mr Stephenson against a company currently known as ACN 000 007 492 Limited, which was formerly called Rural & General Insurance Limited ("RGI"). In that proceeding Mr Stephenson seeks to have removed from office the current administrators who are administering a deed of company arrangement to which RGI is currently subject. 2 The applicant in the second proceeding is one of those administrators and he seeks to have this Court approve their remuneration. The present question which arises concerns, broadly speaking, the issue of whether the Australian Prudential and Regulation Authority ("APRA") should be permitted to intervene, be joined as a party or otherwise be involved in both applications. 3 The proceedings arise in a way which is not necessarily susceptible of a straight-forward statement. However, evidence was given on both applications from Ms Balding who is a senior manager of enforcement at APRA. She gave evidence which indicated that the company, RGI, was formerly an insurance company. Prior to 2 July 2002 it carried on business as a general insurer authorised under the Insurance Act 1973 (Cth) ("the Act"). In 2001 the General Insurance Reform Act 2001 (Cth) was passed, as a consequence of which RGI was required to apply for reauthorisation to carry on its business as a general insurer and to obtain that authorisation prior to 1 July 2002. RGI failed to obtain reauthorisation within the time in which it was required to do so. 4 On 2 July 2002, under some transitional arrangements, APRA authorised the respondent to carry on business as a general insurer for the purpose of discharging liabilities under contracts of insurance entered into by it prior to 2 July 2002. Putting the matter colloquially, APRA authorised RGI effectively to carry on business as a general insurer but only in run-off. The reason, I was informed, that APRA took that position in relation to RGI was that it had significant and considerable concerns as to the regularity and competence of the manner in which RGI was being conducted. 5 Consonant with those concerns, at the same time that APRA permitted RGI to carry on business only in run-off, it also imposed, pursuant to s 13 of the Act, various conditions on RGI and on the way in which it was to carry on its business. It would be fair to say that following the imposition of that form of discipline upon RGI APRA remained dissatisfied with the way in which RGI was being managed. Consequently, following the receipt of a report by an inspector appointed pursuant to s 52 of the Act, APRA then moved to wind up RGI. It did this on 9 September 2003 by means of proceedings which were filed in this Court. Prior to the conclusion of those winding up proceedings, the directors of RGI resolved to appoint administrators to it, which took place on 12 February 2004. 6 On 12 March 2004 a deed of company arrangement ("DOCA") was entered into between RGI and its creditors. The present administrators, Mr Elliott and Mr McDonald, were appointed as the deed administrators. Since that time the business of RGI in run-off has been administered, as might naturally be expected, by the administrators. Mr Stephenson is a person who was formerly involved in the day to day administration of RGI prior to the appointment of the administrators and the execution of the DOCA. 7 Not only was he involved, it would appear, in a management position but additionally he was also a shareholder in the company. The stage is then set to understand the issues which arise between the parties. The administrators require the approval of this Court for their remuneration. They can also obtain that permission from other sources but for reasons which will become apparent there has been a necessity that they apply to this Court. In their remuneration application the administrators seek the Court's approval to an amount of remuneration in the sum of $470,663.20 together with GST thereon. That application for approval would appear to have excited disharmony with Mr Stephenson. 8 It is not entirely obvious on this application but I assume Mr Stephenson, possibly in his capacity as a creditor arising from his former employment, but more likely from his capacity as a shareholder of the company, is concerned that such a significant sum of remuneration will effectively rebound upon him in economic terms. He has therefore commenced a proceeding seeking to remove the administrators from office and to replace them with other persons. I should say for completeness that one of the conditions imposed by APRA was a condition which prohibited RGI from expending in a period of seven days more than $10,000 without obtaining the approval of APRA. 9 By interlocutory applications made in March 2009, APRA has sought to be made a party to both proceedings. It wishes to be made a party to Mr Stephenson's application to remove the administrators because one of the conditions which APRA imposed upon RGI was a condition that would have the effect of preventing Mr Stephenson from being involved in the management of RGI. The evidence suggests that the deed administrators have in fact used the services of a company controlled by Mr Stephenson to effect the day to day operation of its business. 10 APRA is concerned that if the administrators are removed that any new administrator should consent to an arrangement that prevents Mr Stephenson being further involved in the administration of the company. That is APRA's professed reason for participation in Mr Stephenson's proceedings. 11 Insofar as the proceeding brought by the administrators for approval of their remuneration is concerned, APRA says that it has voiced with the administrators concerns relating to the size and extent of their remuneration. This is not a generalised concern, rather APRA notes that in the evidence in support of the application for approval of the remuneration brought by the deed administrators, there are significant references, as might naturally be expected, to work done by those administrators in compliance with certain requirements of APRA, arising from the Act itself. 12 Mr Wheelhouse submitted that as a regulator APRA had a legitimate interest in ensuring that the requirements of its legislation and the efficacy of its legislative regime were preserved and, to the extent necessary, monitored. Mr Anderson, who appeared for the deed administrators, argued that it was not possible for APRA to be joined as a respondent to the remuneration application because of the effect of the Federal Court (Corporations) Rules and in particular r 9.2. Rule 9.2(2) provides that any application in respect of an approval of remuneration should be served on a series of persons. APRA does not appear on the list. 13 Mr Anderson further noted that those persons who do appear on the list are of a kind which indicate an intention on the part of those who wrote the rules that lesser creditors, if I might put it that way, should not be able to get themselves involved in the remuneration proceedings. I do not think that r 9.2 prevents this Court from joining, pursuant to O 6 r 8, a party to a remuneration application where that party has standing. It is common practice for there to exist applications in this Court in which there are no respondents but it would be surprising indeed to think that where the Court were otherwise satisfied that a respondent had standing to resist an application being made, that the mere happenstance that there were only applicants provided for by the rule creating the application should mean that the operation of O 6 r 8 was thereby frustrated. 14 In my opinion APRA has an interest in the administration of the Act and a further interest in ensuring that the conditions which it has imposed upon RGI are enforced. There was a time at which it was thought only the Attorney-General could enforce a statutory regime but it has been established, particularly in the context of injunctions by regulators to enforce their regimes, that a regulator does have standing with respect to the enforcement of its own scheme. It seems to me to follow that APRA has standing to ensure that its regime is complied with when it comes to the question of the approval of the remuneration of the deed administrators. 15 Mr Anderson referred to the decision of this Court in Re Stockford Ltd (2004) 140 FCR 424. In that case Finkelstein J was dealing with an application brought by the joint administrators of the Stockland Group with respect to the remuneration. His Honour held (at 428 [4]): The administrator is entitled to "such remuneration as is fixed by resolution of the company's creditors" or, if they do not fix the remuneration then "such remuneration as the Court fixes": s 449E(1). If the administrator's remuneration is fixed by the creditors their decision may be reviewed by the Court on the application of the administrator or an officer, member or creditor of the company: s 449E(2)(a). There is a surprising gap. ASIC has no standing to apply for a review.