FEDERAL COURT OF AUSTRALIA Duncan, in the matter of Quarterbern Pty Ltd (Subject to Deed of Company Arrangement) (Receiver and Manager Appointed) [2010] FCA 727 Citation: Duncan in the matter of Quarterbern Pty Ltd (Subject to Deed of Company Arrangement) (Receiver and Manager Appointed) [2010] FCA 727 Parties: IN THE MATTER OF QUARTERBERN PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (RECEIVER AND MANAGER APPOINTED) AND DAWSON'S DIESEL SERVICES PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (RECEIVER AND MANAGER APPOINTED) STEPHEN JAMES DUNCAN AND PETER JAMES LANTHOIS File number: SAD 195 of 2008 Judge: MANSFIELD J Date of Ruling: 12 July 2010 Date of Motion: 17 June 2010 Place: Adelaide Division: GENERAL DIVISION Category: No catchwords Number of paragraphs: 20 Counsel for the Plaintiff: B Roberts Solicitor for the Plaintiff: Minter Ellison Counsel for the Respondent: M Livesey QC Solicitor for the Respondent: Mills Oakley IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION SAD 195 of 2008 IN THE MATTER OF QUARTERBERN PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (RECEIVER AND MANAGER APPOINTED) AND DAWSON'S DIESEL SERVICES PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (RECEIVER AND MANAGER APPOINTED) STEPHEN JAMES DUNCAN First Plaintiff AND PETER JAMES LANTHOIS Second Plaintiff JUDGE: MANSFIELD J DATE OF ORDER: 12 JULY 2010 WHERE MADE: ADELAIDE On the application of the plaintiffs by motion of 17 June 2010, the Court 1. gives directions pursuant to s 447D of the Corporations Act 2001 (Cth) that, from the funds held by the plaintiffs in respect of Quarterbern Pty Ltd (Subject to Deed of Company Arrangement) (Receiver and Manager Appointed), they pay to Mr Brent Leigh Morgan in his capacity as receiver and manager of Quarterbern Pty Ltd (Subject to Deed of Company Arrangement) (Receiver and Manager Appointed) the sum of $2,614,749.16; 2. orders that application otherwise be dismissed; and 3. orders that there be no order as to costs of that application. 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 Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION SAD 195 of 2008 IN THE MATTER OF QUARTERBERN PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (RECEIVER AND MANAGER APPOINTED) AND DAWSON'S DIESEL SERVICES PTY LTD (SUBJECT TO DEED OF COMPANY ARRANGEMENT) (RECEIVER AND MANAGER APPOINTED) STEPHEN JAMES DUNCAN First Plaintiff AND PETER JAMES LANTHOIS Second Plaintiff JUDGE: MANSFIELD J DATE: 12 JULY 2010 PLACE: ADELAIDE REASONS FOR RULING 1 The plaintiffs, Stephen Duncan and Peter Lanthois, are the administrators, of Quarterbern Pty Ltd (Subject to Deed of Company Arrangement) (Quarterbern) and Dawson's Diesel Services Pty Ltd (Subject to Deed of Company Arrangement) (Dawsons) (collectively, the companies) appointed under a deed of company arrangement entered into on 26 March 2009 (the DOCA). 2 On 17 June 2010 the plaintiffs filed an application under s 447D of the Corporations Act 2001 (Cth) (the Act) for general directions in respect of the affairs of the companies. That section provides that: 1. The administrator of a company under administration, or of a deed of company arrangement, may apply to the Court for directions about a matter arising in connection with the performance or exercise of any of the administrator's functions and powers. 2. The administrator of a deed of company arrangement may apply to the Court for directions about a matter arising in connection with the operation of, or giving effect to, the deed. 3 Administrators may apply to the Court for directions under that section when they are in doubt as to the legality of action they propose to take in a matter arising in the course of their administration. Section 447D is, in substance, in similar terms to s 479(3) of the Act which allows a liquidator of a company to apply to the Court for directions "in relation to any particular matter arising under the winding up". In Editions Tom Thompson Pty Ltd v Pilley (1997) 77 FCR 141, a company subject to a deed of company arrangement applied to the Court pursuant to s 447D of the Act for directions. Lindgren J observed at 149: The procedure afforded by s 447D to administrators under a deed of company arrangement is clearly drawn from, and is in substance the same as, that afforded to liquidators by s 479(3) Accordingly, authorities relevant to the construction and application of s 479(3) are also relevant to applications made under s 447D. 4 There are a number of authorities which consider the consequences of an order upon the rights of third parties made upon an application by a liquidator for directions under s 479(3) of the Act. In Re G B Nathan & Co Pty Ltd (in liq) (1991) 24 NSWLR 674, McLelland J observed at 679-680: Modern Australian authority confirms the view that s 479(3) 'does not enable the court to make binding orders in the nature of judgments' and that the function of a liquidator's application for directions 'is to give him advice as to his proper course of action in the liquidation; it is not to determine the rights and liabilities arising from the company's transactions before the liquidation' [citations omitted] 5 The same position has been expressed in relation to directions given pursuant to s 447D of the Act: Editions Tom Thompson Pty Ltd v Pilley (1997) 77 FCR 141. 6 It is therefore the role of the Court to consider the consequences of any directions upon the rights of third parties in considering the proper course of action in the administration of a deed of company arrangement. It is not the Court's role to make binding orders in the nature of a judgment. 7 The application was listed for hearing on 18 June 2010, but adjourned as counsel for the plaintiffs and the receiver and manager of the companies (appointed in the circumstances set out below) intimated that the matters of concern were close to resolution. On 1 July 2010, proposed directions by consent were provided. These are my reasons for making the proposed directions. 8 Quarterbern was incorporated in the Northern Territory on 27 September 2004. Dawsons was also incorporated in the Northern Territory on 22 September 1997. The sole director secretary and shareholder of the companies was at all material times Bernard Dawson. 9 The following fixed and floating charges had been registered over the assets of the companies prior to 26 March 2009: (1) the National Australia Bank (NAB) holds fixed and floating charges over the assets of Quarterbern, securing a liability of approximately $6,527,327, and over the assets of Dawsons, securing a liability of $1,527,327. (2) D E Walker Properties Pty Ltd (D E Walker) holds a second ranking fixed and floating charge over the assets of Quarterbern, securing a loan of $1,400,000. 10 The disclosed unsecured trade creditors of Quarterbern total approximately $7,968,593 based on claims lodged with the plaintiffs to 17 June 2010. That includes employee priority claims of $263,000. The unsecured trade creditors of Dawsons total approximately $3,160,148 also based on claims lodged with the plaintiffs to 17 June 2010. That too includes employee priority claims of $116,957. 11 The assets of the companies available to meet those claims and the secured liabilities are obviously inadequate. On 17 June 2010, the plaintiffs held the sum of $3,122,321.29 on behalf of Quarterbern for the benefit of the creditors of that company under the DOCA, and only the sum of $74,391 on behalf of Dawsons for the creditors of that company under the DOCA. There is nothing to suggest other assets as yet unidentified might improve that position. A putative claim against Mr Dawson is considered below. 12 Prior to the application for directions, Mr Dawson became subrogated to the rights of the NAB under the NAB charge granted by the companies, having acquired those rights by making certain payments to the NAB. Again, there is nothing to suggest that was other than an arms length transaction. On 11 June 2010, Mr Dawson, in the exercise of those rights under the NAB charges, appointed Brent Leigh Morgan as receiver and manager over the property of the companies. The receiver and manager demanded payment from the plaintiffs of the funds held by them for each of the companies to the extent of the respective indebtedness of each of them under those charges. Mr Dawson also demanded the plaintiffs pay to D E Walker the sum of approximately $1,728,342 from the proceeds held by the plaintiffs, on the basis that he has personally guaranteed the Quarterbern's indebtedness to D E Walker and so, as guarantor, asserted that he was exercising subrogated rights on behalf of D E Walker. 13 Initially, the plaintiffs sought directions that the plaintiffs do not need to comply with the purported exercise by Mr Dawson of any rights in respect of the security held by the NAB over the assets of the companies, as may have been subrogated or assigned to him. They also sought directions that, in the event of a liquidation of the companies, they are entitled to set-off against the liabilities to the NAB (as acquired by Mr Dawson) a putative claim that each of the companies may have against Mr Dawson, so that the amount of the secured indebtedness of the companies was significantly reduced. The detail of that putative claim was not fully explained but it appears to be based upon alleged insolvent trading. 14 Those issues have now been resolved. The directions now sought are of an entirely different character. They are that the plaintiffs be authorised to pay from the funds held by the plaintiffs on behalf of Quarterbern to Mr Morgan in his capacity as receiver and manager of Quarterbern the sum of $2,614,749.16. There is to be no payment to Dawsons. They also provide that the interlocutory application filed on 17 June 2010 be otherwise dismissed and there be no order as to costs on that motion. 15 I considered that I should be satisfied of the following matters before making the proposed directions and orders: (1) Confirmation that the first ranking secured creditor was NAB and not D E Walker, and whether that company had been notified of the proceedings, and agreed with the proposed payments, or alternatively whether there is some other way that its interests were protected; and (2) that the plaintiffs accepted that the assigned security was enforceable at least to the amount of the proposed payment notwithstanding any putative set-off they may have had against Mr Dawson. 16 On 8 July 2010 the parties provided a joint response to these two matters. The response clarified that the first ranking secured creditor is the NAB and the second ranking secured creditor is D E Walker. D E Walker was advised of the terms of the proposed directions and orders. The response also confirmed that D E Walker consents to the proposed directions and orders. 17 The plaintiffs also indicated that, having considered the position further, they have determined not to press the putative set-off contention against Mr Dawson so that they accept that he may enforce the NAB Security, as assigned, to its full extent. 18 I am satisfied that the rights of any interested parties are adequately protected. Mr Dawson as the assignee of the NAB secured debts is separately advised. D E Walker as a second ranking secured creditor is also aware of, and consents to, the proposed directions and orders. The unsecured creditors of the companies, whose interests the plaintiffs are attending to, are confronted with valid secured debts of each of the companies which exceed the available funds of the companies. The plaintiffs, after taking advice, do not consider that there is any basis for contesting the validity of those securities, or the effectiveness of the assignment of the NAB securities to Mr Dawson. The proposed directions will leave some funds available to the plaintiffs to be applied in accordance with the law, notwithstanding that position. In addition, it is anticipated that the companies will be wound up on 15 July 2010. The plaintiffs will also then be able, as liquidators, to pursue such claim against Mr Dawson for insolvent trading as they may be advised. The deferral of that possible claim to that time is more efficient than now pursuing it, and would also not then be vulnerable to attack by the trustee of Mr Dawson if in the near future he were to become bankrupt in the same way as any settled claim on that basis now met by him. 19 Accordingly, I give the following directions: 1. From the funds held by the plaintiffs in respect of Quarterbern, that they pay to Brent Leigh Morgan in his capacity as receiver and manager of Quarterbern the sum of $2,614,749.16. 2. The interlocutory application for directions on 17 June 2010 otherwise be dismissed; and 3. There be no order as to costs of that application. 20 The proposed consent directions and orders were expressed in the form of a final judgment. That may simply have been a drafting expression. I did not consider it appropriate to convert the interlocutory application to an inter partes final judgment, as the proceeding presently is not structured as an inter partes dispute. I think the directions I have given achieve that which the plaintiffs seek to achieve in any event. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Ruling herein of the Honourable Justice Mansfield. Associate: Dated: 12 July 2010