FEDERAL COURT OF AUSTRALIA Huxtable, in the matter of Calnan Oldfield Pty Ltd (ACN 120 195 833) (Administrator Appointed) [2010] FCA 769 Citation: Huxtable, in the matter of Calnan Oldfield Pty Ltd (ACN 120 195 833) (Administrator Appointed) [2010] FCA 769 Parties: IN THE MATTER OF CALNAN OLDFIELD PTY LTD (ADMINISTRATOR APPOINTED); THE APPLICATION OF CARL ALAN LOUIS HUXTABLE v CALNAN OLDFIELD PTY LTD (ACN 120 195 833) (ADMINISTRATOR APPOINTED), PETER GEPP and GRANT GEPP File number: WAD 173 of 2010 Judge: BARKER J Date of judgment: 29 June 2010 Catchwords: CORPORATIONS - application to have Pt 5.3A of the Corporations Act 2001 (Cth) operate as if administrator's appointment was procedurally valid - opposed by defendant directors - fact that Company was insolvent agreed - whether administrator had conflict of interest and could not act independently- administrator found to be properly independent - appointment validated Legislation: Corporations Act 2001 (Cth), Pt 5.3A, s 447A Date of hearing: 29 June 2010 Place: Perth Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 20 Counsel for the Plaintiff: Ms MLF Chua Solicitor for the Plaintiff: summerslegal Counsel for the Second and Third Defendants: Mr RP Camm Solicitor for the Second and Third Defendants: Camm & Associates IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 173 of 2010 BETWEEN: IN THE MATTER OF CALNAN OLDFIELD PTY LTD (ADMINISTRATOR APPOINTED); THE APPLICATION OF CARL ALAN LOUIS HUXTABLE Plaintiff AND: CALNAN OLDFIELD PTY LTD (ACN 120 195 833) (ADMINISTRATOR APPOINTED) First Defendant PETER GEPP Second Defendant GRANT GEPP Third Defendant JUDGE: BARKER J DATE OF ORDER: 29 JUNE 2010 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. Part 5.3A of the Corporations Act 2001 (Cth) (Act) is to operate in relation to Calnan Oldfield Pty Ltd ACN 120 195 833 (Company) as if Carl Alan Louis Huxtable was validly appointed as administrator of the Company by resolution on 18 June 2010, pursuant to s 436A(1) of the Act. 2. Part 5.3A of the Act is to operate in relation to the Company as if the date for holding the first meeting of creditors under s 436E(2) of the Act is 7 July 2010. 3. Part 5.3A of the Act is to operate in relation to the Company as if s 443A(1) of the Act takes effect only in respect of debts incurred from 4pm 25 June 2010 onwards. 4. Part 5.3A of the Act is to operate in relation to the Company as if the commencement of rent liability or other amounts payable under s 443B(2) of the Act is from 2 July 2010 onwards. 5. The second and third defendants shall jointly and severally pay the costs and disbursements for this application including all reserved costs to be taxed if not agreed. 6. There be liberty to apply upon providing 48 hours notice. 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 WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 173 of 2010 BETWEEN: IN THE MATTER OF CALNAN OLDFIELD PTY LTD (ADMINISTRATOR APPOINTED); THE APPLICATION OF CARL ALAN LOUIS HUXTABLE Plaintiff AND: CALNAN OLDFIELD PTY LTD (ACN 120 195 833) (ADMINISTRATOR APPOINTED) First Defendant PETER GEPP Second Defendant GRANT GEPP Third Defendant JUDGE: BARKER J DATE: 29 JUNE 2010 PLACE: PERTH REASONS FOR JUDGMENT order made 1 On 25 June 2010 I made the following orders on an interim basis: 1. Until further order of the Court, Pt 5.3A of the Corporations Act 2001 (Cth) (Act) is to operate in relation to Calnan Oldfield Pty Ltd ACN 120 195 833 (Company) as if Carl Alan Louis Huxtable was validly appointed under s 436A(1) of the Act as administrator of the Company by resolution on 18 June 2010. 2. Until further order of the Court, Pt 5.3A of the Act is to operate in relation to the Company as if there was no obligation to hold the first meeting of creditors under s 436E(2) of the Act. 3. Until further order of the Court, Pt 5.3A of the Act is to operate in relation to the Company as if the time for commencement of rent liability or other amounts payable under s 443B(2) of the Act has not yet arrived. 4. The originating process is adjourned for hearing to 2.15pm on Tuesday 29 June 2010. 5. Mr Peter Gepp and Mr Grant Gepp are joined as second and third defendants and are to file and serve any affidavit material in opposition to the originating process by 4pm on Monday 28 June 2010 together with an outline of submissions. 6. The plaintiff to file and serve any responsive affidavit material and outline of submissions by 12 noon on Tuesday 29 June 2010. 7. Costs of today are reserved. 2 At the conclusion of the adjourned hearing on Tuesday 29 June 2010 I made the following final orders: 1. Part 5.3A of the Corporations Act 2001 (Cth) (Act) is to operate in relation to Calnan Oldfield Pty Ltd ACN 120 195 833 (Company) as if Carl Alan Louis Huxtable was validly appointed as administrator of the Company by resolution on 18 June 2010, pursuant to s 436A(1) of the Act. 2. Part 5.3A of the Act is to operate in relation to the Company as if the date for holding the first meeting of creditors under s 436E(2) of the Act is 7 July 2010. 3. Part 5.3A of the Act is to operate in relation to the Company as if s 443A(1) of the Act takes effect only in respect of debts incurred from 4pm 25 June 2010 onwards. 4. Part 5.3A of the Act is to operate in relation to the Company as if the commencement of rent liability or other amounts payable under s 443B(2) of the Act is from 2 July 2010 onwards. 5. The second and third defendants shall jointly and severally pay the costs and disbursements for this application including all reserved costs to be taxed if not agreed. 6. There be liberty to apply upon providing 48 hours notice. 3 At the time of making these final orders, I gave oral reasons for decision. These reasons are an edited form of those reasons given orally. ISSUE 4 Calnan Oldfield Pty Ltd (ACN 120 195 833) (Company) operates a real estate sales and property management business under the name of "Fruit Property Applecross". On 18 June 2010, Ross Sydney Calnan (Mr Calnan), a director of the Company, purported on behalf of the Company, to appoint Carl Alan Louis Huxtable (Mr Huxtable) as administrator of the Company. 5 Peter Gepp, a director of the Company and the second defendant, and Grant Gepp, a shareholder of the Company and the third defendant, initially appeared to challenge the validity of Mr Huxtable's appointment as administrator of the Company on three grounds, namely, that: · Mr Huxtable's appointment was procedurally invalid because Mr Calnan could not unilaterally appoint an administrator. · The Company was solvent and did not require administration. · Mr Huxtable was in a position of conflict of interest. 6 At the hearing on 29 June 2010, however, the second and third defendants acknowledged that an administrator should be appointed to the Company, but opposed the continued appointment of Mr Huxtable on the basis of conflict of interest. background 7 Prior to Mr Huxtable's appointment, Mr Huxtable had met Mr Calnan and had a meeting with him and others on 12 February 2010. 8 Mr Huxtable deposes at [4] of an affidavit dated 29 June 2010 that at that meeting the following occurred: · Mr Calnan informed Mr Huxtable of the structure of the Company and the issues that the Company was facing. · Mr Huxtable informed Mr Calnan of the possible processes in a voluntary administration scenario and a liquidation scenario. · Mr Huxtable informed Mr Calnan that in order for Mr Huxtable to take on the appointment as administrator he would like to receive an indemnity for his fees. Mr Huxtable annexes to his affidavit three pages of his handwritten notes of that meeting. 9 The defendants say that this meeting undermines Mr Huxtable's claims of independence to the point where he could not act as a proper administrator of the Company. I will return to this contention below. 10 Mr Huxtable's appointment was by a director's resolution dated 18 June 2010 and signed by Mr Calnan. Accompanying that resolution was a statutory declaration sworn by Mr Calnan deposing to his belief that the Company was about to become insolvent and that he was the only bona fide director of the Company: affidavit of Mr Huxtable sworn 24 June 2010 at [9]. 11 Mr Huxtable deposes that he took the following steps, amongst others, after his appointment: · On 18 June 2010 he requested the Company's bank to put a stop only on payments out of the Company's bank accounts. · On 21 June 2010 he wrote to the second defendant's solicitors detailing his understanding of the background to the Company and the fact that the Company was prima facie insolvent. · On 22 June 2010 he requested an urgent meeting with the Company's office manager, Ms Dianne Cunningham, to discuss his appointment and the controls to be implemented to minimise disruption to the business. · On 23 June 2010 he met with the second defendant, the second defendant's solicitor and Ms Cunningham in an attempt to move forward with the administration. At that meeting the second defendant advised Mr Huxtable that he did not recognise Mr Huxtable's appointment. · He notified the Australian Securities and Investments Commission, the Australian Tax Office, Bankwest, Sherrifs and Bailiffs and Telstra of his appointment. · On 24 June 2010 he signed an updated Declaration of Independence, Relevant Relationships and Indemnities deposing to his relationship with the Company. · On 25 June 2010 he spoke with an inspector for the Real Estate and Business Agents Supervisory Board (REBA) and informed the inspector of his appointment as administrator of the Company. He also provided a brief summary of the issues he understood to be of concern. · On 28 June 2010 he met with staff of the Company to discuss the relevant control processes that the Company had in place in regards to the management of client files and funds, as well as to explain the purpose of administration and the possible outcomes. · On 28 June 2010, at the business premises of the Company, he met with inspectors from REBA and agreed to maintain regular contact with them. consideration 12 At the adjourned hearing on 29 June 2010 it became apparent that the parties agreed that the Company should be put into voluntary administration as soon as possible. The only question of substance that needed to be determined was whether the administrator should be Mr Huxtable, as contended for by the plaintiff, or administrators nominated by the second and third defendants. 13 To the extent that there may remain strict issues of law concerning the regularity of Mr Huxtable's initial appointment by Mr Calnan for the Company, the exercise of the Court's powers under Pt 5.3A to modify the application of the Part is not doubted by the parties. 14 I appreciate the points that have been raised on behalf of the second and third defendants as to why there might be questions concerning the independence and impartiality of Mr Huxtable. The evidence to suggest that Mr Huxtable might not be able to bring to the administration appropriate independence, as he acknowledges he must do, dates back to the meeting that Mr Calnan had with lawyers from the law firm summerslegal, to which Mr Huxtable appears to have been invited, on 12 February 2010. There is some evidence to suggest that the meeting may have been as long as two and a half hours. However, I accept the plaintiff's point this that does not mean that Mr Huxtable was himself actively engaged in the process for two and a half hours during which legal and administration advice was proffered. The affidavit of Mr Huxtable sworn 29 June 2010 annexes three pages of notes from that meeting that indicate the range of topics he received advice on or advised in respect of. They all seem generally to relate to insolvency issues. I accept, from the way the evidence has been put on, that it was a meeting about insolvency and not some strategic discussion as to how Mr Calnan might be able to sharpen his sword for other proceedings or actions of a corporate nature against the defendants with Mr Huxtable's assistance. 15 Nonetheless, it is relevant to consider the effect of Mr Huxtable's involvement in that meeting. It does seem, as suggested by Mr Huxtable in his affidavit and in the submissions of counsel, that the whole question of what was to be done with the company fell into abeyance following the meeting for some period until the Australian Tax Office issued notices in June which would have resulted, if not appropriately responded to, in the personal liability of the directors of the Company. That event caused Mr Calnan then to reactivate consideration of the advice he had received earlier about putting the Company into administration. 16 It seems to me that it is reasonable to take a practical rather than an artificial view of what then happened. Mr Huxtable, it seems, in the light of the solicitor, Mr Robert Grayden, acting for Mr Calnan as his personal lawyer, had an expectation that there might be dealings between Mr Calnan and the second defendant, and some sort of meeting arranged to resolve issues between them. As things developed that did not happen. It might be reasonable, as counsel for the second and third defendants does here, to criticise Mr Huxtable for not doing more to get the second defendant to the negotiating table, to demonstrate Mr Huxtable's own bona fides in all of this. But in the end, I do not take the view that what in fact happened eroded or erodes the independent stance of Mr Huxtable, or his capacity to act independently in the administration of the Company in the future. 17 It is always understandable when these sorts of commercial disputes occur, and an insolvency practitioner's advice has been sought at an early stage by a party to the dispute, to question whether the practitioner's prior involvement militates against his or her appointment as administrator. But when all is said and done here, I am not satisfied that Mr Huxtable cannot continue to act. I am impressed on this occasion that Mr Huxtable appears to fully appreciate what his responsibilities are under the Act, as fortified by their articulation in the Insolvency Practitioner's Code of Conduct that he subscribes to. Attention has also been drawn to the Declaration of Independence, Relevant Relationships and Indemnities that Mr Huxtable has made, which is annexed to his affidavit. He has outlined in substance all of the relevant circumstances that bear upon his ability to act independently and impartially. 18 While I acknowledge that the second and third defendants in these circumstances might, from their perspective, have harboured concerns about Mr Huxtable's independence, the matter having now been agitated before me, I am satisfied that the appointment of Mr Huxtable can continue, and that he is an appropriate person to conduct the administration. 19 There being no serious disagreement otherwise between the parties as to the need for the Company to be put into administration, and earlier concerns expressed by the defendants as to the entitlement of Mr Calnan to appoint an administrator for the Company without the concurrence of Mr Peter Gepp having dissipated in such circumstances, I have little hesitation pursuant to s 447A in modifying the relevant provisions of Pt 5.3A of the Act in the interests of the Company, shareholders and creditors in this case. orders 20 Orders should be made as proposed by the plaintiffs. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Barker. Associate: Dated: 21 July 2010